Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)
1. Company Description
Xerium Technologies, Inc. (the “Company”) is a leading global manufacturer and supplier of
two
types of consumable products used primarily in the production of paper – clothing and roll covers. Its operations are strategically located in the major paper-making regions of the world, including North America, Europe, South America and Asia-Pacific.
Debt Refinancing
On May 26, 2011, the Company completed a refinancing transaction, which replaced certain of its then outstanding indebtedness with an offering of
$240 million
of its
8.875%
senior unsecured notes due 2018 (the “Notes”) and a new approximately
$278 million
multi-currency senior secured credit facility (the “Credit Facility”), comprised of approximately
$248 million
of senior secured term loans and a committed
$30 million
senior secured revolving credit facility. The goal of the refinancing was to extend the maturity of, and fix the interest rate on, a portion of the Company’s debt, while providing increased operational flexibility. See Note 5 "Long-term Debt" for a discussion of the Notes and Credit Facility.
Chapter 11 Filing, Emergence and Plan of Reorganization
On March 30, 2010 (the “Commencement Date”), the Company and certain of its subsidiaries (the “Debtor Subsidiaries”) filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101-1532 (as amended, the “Bankruptcy Code”), and on April 1, 2010, following approval by the Bankruptcy Court, the Company entered into a debtor-in-possession financing facility consisting of a
$20,000
revolving credit facility and
$60,000
term loan (the “DIP Facility” subsequently converted to the “Exit Facility”). On May 25, 2010 (the “Effective Date”), the Company’s amended joint prepackaged plan of reorganization (the “Plan”) became effective and the Company and the Debtor Subsidiaries emerged from Chapter 11. Pursuant to the Plan, on the Effective Date:
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•
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20 million
shares of new common stock of the Company, par value
$0.001
(the “New Common Stock”) were authorized, of which an aggregate of
14,970,050
shares were issued and outstanding, as described below. In addition,
1,000,000
shares of preferred stock of the Company, par value
$0.001
, were authorized, of which
20,000
shares are designated as Series A Junior Participating Preferred Stock;
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•
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All of the shares of the Company’s common stock outstanding (the “Old Common Stock”), par value
$0.01
, were canceled and replaced with
2,566,150
shares of New Common Stock, which was equivalent to a
20
to
1
reverse split of the Old Common Stock;
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•
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The Company’s lenders under its pre-petition credit facility and its interest rate swap termination counterparties (collectively, the “Lenders”) received, among other things, their ratable shares of (a)
$10,000
in cash, (b)
$410,000
in principal amount of term notes, issued pursuant to the Company’s post-reorganization senior credit facility (“Prior Credit Facility”), and (c)
12,403,900
shares of New Common Stock; and
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•
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Holders of the Company’s Old Common Stock also received
four
-year warrants to purchase an aggregate of
1,663,760
shares of New Common Stock (the “Warrants”) at an exercise price of
$19.55
per share, representing approximately
0.0324108
Warrants for each share of Old Common Stock.
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Accounting for Reorganization
Subsequent to the Commencement Date and through the Effective Date, the Company’s financial statements were prepared in accordance with the Accounting Standards Codification (“ASC”) Topic 852,
Reorganizations
(“Topic 852”). Topic 852 does not change the application of U.S. generally accepted accounting principles (“GAAP”) in the preparation of the Company’s financial statements. However, for periods including and subsequent to the filing of a Chapter 11 petition, Topic 852 does require that the financial statements distinguish transactions and events that are directly associated with the reorganization from those that are associated with the ongoing operations of the business. Because the reorganization value of the Company’s assets was greater than the sum of its post-petition liabilities and allowed claims, the Company did not adopt the fresh-start reporting principles of Topic 852.
In accordance with Topic 852, the Company (i) separated liabilities that are subject to compromise from liabilities that are not subject to compromise, during the period subsequent to the Commencement Date and prior to the Effective Date; and (ii) distinguished transactions and events that were directly associated with the reorganization from those that are associated with the ongoing operations of the business.
Reorganization items are presented separately in the accompanying consolidated statement of operations and represent expenses that the Company identified as directly relating to the reorganization in 2010. These items for the year ended December 31, 2010 are summarized as follows:
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Year
Ended December 31,
2010
|
Legal and professional fees
|
$
|
16,274
|
|
Loss on extinguishment of debt
|
14,400
|
|
Write-off of deferred financing costs on pre-petition credit facility
|
14,283
|
|
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$
|
44,957
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2. Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared on the basis of GAAP. The consolidated financial statements include the accounts of Xerium Technologies, Inc. and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated.
Revenue Recognition
Revenue on product sales is recognized when persuasive evidence of an arrangement exists, the price is fixed and determinable, delivery including transfer of title has occurred, and there is a reasonable assurance of collection of the sales proceeds. The Company generally obtains written purchase authorizations from customers for a specific product at a specified price and considers delivery and transfer of title to have occurred primarily at the time of shipment. Revenue is recorded net of applicable allowances, including estimated allowances for returns, rebates, and other discounts. In our clothing segment, a small portion of our business has been conducted pursuant to consignment arrangements under which the Company does not recognize a sale of a product to a customer until the customer places the product into use, which typically occurs some period after the product is shipped to the customer or to a warehouse location near the customer’s facility. As part of the consignment agreement the Company delivers the goods to a location designated by the customer. In addition, the customer and the Company agree to a “sunset” date, which represents the date by which the customer must accept all risks and rewards of ownership of the product and payment terms begin. For consignment sales, revenue is recognized on the earlier of the actual product installation date or the “sunset” date.
Classification of Costs and Expenses
Cost of products sold includes raw materials, manufacturing labor, direct and indirect overhead costs, product freight, and depreciation of manufacturing plant and equipment. Warehousing costs incurred as a result of customer-specific delivery terms are also included in cost of products sold.
Selling expenses include direct sales force salaries, commissions and expenses as well as agents’ commissions and fees, other warehousing costs, advertising costs and marketing costs.
General and administrative expenses include costs relating to management and administrative staff such as employee compensation and benefits, travel and entertainment, non-manufacturing facility occupancy costs including rent expense and professional fees, as well as depreciation on non-manufacturing equipment and office supplies and expenses.
Research and development expenses are comprised of engineering staff wages and associated fringe benefits, as well as the cost of prototypes, testing materials and non-capitalizable testing equipment.
Advertising Costs
Selling expenses include advertising expenses of
$1,215
,
$1,380
and
$1,108
in 2012, 2011 and 2010, respectively. The Company expenses all advertising costs as incurred.
Translation of Financial Statements
The reporting currency of the Company is U.S. Dollars. Assets and liabilities of non-U.S. operations are translated at year-end rates of exchange, and the consolidated statements of operations, comprehensive loss and cash flows are translated at the average rates of exchange during the year. Gains and losses resulting from translating non-U.S. Dollar denominated financial statements are recorded in accumulated other comprehensive income (loss) as a component of stockholders’ (deficit) equity.
Foreign Exchange
Foreign exchange gains and losses arising out of transactions denominated in currencies other than a subsidiary’s functional currency are recorded in the consolidated statements of operations. Net exchange gains and losses are recorded in “Foreign exchange gain (loss)” and amounted to a loss of
$(358)
for the year ended December 31, 2012, a loss of
$(156)
for the year ended December 31, 2011 and a gain of
$1,668
for the year ended December 31, 2010. Certain intercompany loans have been determined to be permanent, and accordingly, foreign exchange gains or losses related to such loans are recorded in accumulated other comprehensive income (loss).
Derivatives and Hedging
Derivatives and Hedging
As required by ASC Topic 815,
Derivatives and Hedging
(“Topic 815”), the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transaction in a cash flow hedge.
The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting under Topic 815. See Note 6 "Derivatives and Hedging" for further discussion on the Company’s derivatives.
Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid short-term investments with maturities of three months or less when acquired. Short-term investments consist of time deposits or money market accounts at investment-grade banks. As of December 31, 2012, certain of the Company’s deposits in U.S. bank accounts exceeded the FDIC guarantee of
$250
per depositor.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at cost, and do not bear interest. Bad debt provisions are included in general and administrative expense. The amounts recorded are derived based upon the general aging of receivables, specific customer credit history and payment trends, and any new business conditions.
Inventories
Inventories are generally valued at the lower of cost or market using the first-in, first-out (FIFO) method. Raw materials are valued principally on a weighted average cost basis. The Company’s work in process and finished goods are specifically identified and valued based on actual inputs to production. Provisions are recorded as appropriate to write-down obsolete and excess inventory to estimated net realizable value. The process for evaluating obsolete and excess inventory often requires
management to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventory will be able to be sold in the normal course of business, while considering the general aging of inventory and factoring in any new business conditions.
The components of inventories are as follows at:
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December 31,
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2012
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2011
|
Raw materials
|
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$
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16,924
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|
|
$
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19,872
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Work in process
|
|
23,681
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|
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26,326
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|
Finished goods (includes consigned inventory of $8,726 in 2012 and $12,953 in 2011)
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36,786
|
|
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37,119
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$
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77,391
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|
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$
|
83,317
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Financial Instruments
The carrying value of cash and cash equivalents, trade receivables, other current assets, accounts payable, notes payable and amounts included in accruals meeting the definition of a financial instrument under U.S. GAAP approximate fair value due to their short-term nature. The carrying value of long-term debt is greater than its fair value (see Note 5 "Long-term Debt"). The Company determines estimated fair values based upon quoted market values where applicable or management estimates.
Long-lived Assets
Property and equipment
Property and equipment are recorded at cost. Property and equipment acquired in connection with acquisitions are recorded at fair value as of the date of the acquisition, and subsequent additions are recorded at cost. Depreciation is computed using the straight-line method over the following estimated useful lives:
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Asset
|
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Years
|
|
Buildings and improvements
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3-50
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|
Machinery and equipment
|
|
— Heavy
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16-25
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— General
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13-15
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— Light
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6-12
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— Molds, tools, office and computers
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2-5
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Property and equipment consist of the following at:
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December 31,
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|
2012
|
|
2011
|
Land
|
|
$
|
21,905
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|
|
$
|
22,638
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|
Building and improvements
|
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139,672
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|
145,113
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Machinery and equipment
|
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627,015
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|
621,794
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Construction in progress
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10,031
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|
|
10,660
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Total
|
|
798,623
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|
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800,205
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Less accumulated depreciation
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(489,817
|
)
|
|
(464,949
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)
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$
|
308,806
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|
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$
|
335,256
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The Company recorded
$38.5 million
,
$41.4 million
and
$39.0 million
in depreciation expense in 2012 and 2011, respectively.
Assets held for sale or sold
During the third quarter of 2011, the Company sold its Geelong, Australia facility for a net purchase price of
$5.4 million
that resulted in a gain of
$0.4 million
. The Company entered into a separate lease agreement in the third quarter of 2011 with the purchaser whereby the Company is leasing back this sold property from the purchaser for a period of
5 years
with annual
lease payments of
$0.5 million
. In accordance with ASC 840-40,
Sale-leaseback Transactions
, the Company deferred the gain on the sale of
$0.4 million
and will recognize this over the life of the lease as a reduction to rent expense. In addition, a vacant facility with a carrying value of
$2.7 million
is held for sale at December 31, 2012 and 2011 and a rolls facility, with a carrying value of
$2.0 million
is held for sale at December 31, 2012.
Impairment
The Company reviews its long-lived assets that have finite lives for impairment in accordance with ASC Topic 360,
Property, Plant, and Equipment
(“Topic 360”). This topic requires that companies evaluate the fair value of long-lived assets based on the anticipated undiscounted future cash flows to be generated by the assets when indicators of impairment exist to determine if there is impairment to the carrying value. Any change in the carrying amount of an asset as a result of the Company’s evaluation has been recorded in restructuring and impairments expense in the consolidated statements of operations. Impairment charges associated with restructuring are discussed in Note 11 "Restructuring Expense".
In addition, in the fourth quarter of 2012, the Company determined there was impairment to the carrying value of it's vacant facility held for sale at December 31, 2012, and recorded a
$1.2 million
impairment expense. This impairment charge is included in general and administrative expense in the Consolidated Statements of Operations for the year ended December 31, 2012.
Intangible assets
Intangible assets consist of patents, licenses, trademarks and deferred financing costs. Patents, licenses and trademarks are amortized on a straight-line basis over their remaining lives, which range from three to fifteen years. Deferred financing costs are amortized using the effective interest method as a component of interest expense over the life of the related debt.
Goodwill
The Company accounts for goodwill and other intangible assets in accordance with ASC Topic 350,
Intangibles—Goodwill and Other Intangible Assets
(“Topic 350”). Topic 350 requires that goodwill and intangible assets that have indefinite lives not be amortized but, instead, must be tested at least annually for impairment or whenever events or business conditions warrant. Goodwill impairment testing is a two-step process. Step 1 involves comparing the fair value of the Company’s reporting unit to its carrying amount. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit carrying amount is greater than the fair value then the second step must be completed to measure the amount of impairment, if any. Step 2 calculates the implied fair value of goodwill by deducting the fair value of the net assets of the reporting unit from the fair value of the reporting unit as determined in Step 1. The implied fair value of goodwill determined in this step is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is recognized equal to the difference. The Company performs an annual test for goodwill impairment as of December 31 at the reporting unit level. The Company has two reporting units: clothing and roll covers. For the purpose of performing the annual impairment test, the Company allocates all shared assets and liabilities to the reporting units based on the percentage of each reporting unit’s revenue to total revenue. Shared operating expenses are allocated to the reporting unit to the extent necessary to allow them to operate as independent businesses. To determine if impairment exists, the fair value of each reporting unit is compared to its carrying value. The fair value of the Company’s reporting unit is determined by using a weighted combination of both a market multiple approach and an income approach. The market multiple approach utilizes the Company’s and its competitors’ proprietary information that is used to value its reporting units. The income approach is a present value technique used to measure the fair value of future cash flows produced by each reporting unit. As a result of the annual tests for goodwill impairment performed as of December 31, 2012 and 2011, the Company determined that no goodwill impairment exists.
Stock-Based Compensation
The Company records stock-based compensation expense in accordance with ASC Topic 718,
Compensation—Stock Compensation
(“Topic 718”) which generally requires that such transactions be recognized in the statement of operations based on their fair values at the date of grant. See Note 10 "Stock-Based Compensation" for further discussion.
Net Income (Loss) Per Common Share
Net income (loss) per common share has been computed and presented pursuant to the provisions of ASC Topic 260,
Earnings per Share
(“Topic 260”). Net income (loss) per share is based on the weighted-average number of shares outstanding during the period.
As of December 31, 2012, 2011 and 2010, the Company had outstanding restricted stock units (“RSUs”) (See Note 10 "Stock-Based Compensation"). Diluted average shares outstanding were computed using (i) the average market price for time-
based RSUs and (ii) the actual grant date market price for non-employee director RSUs. The calculation of diluted earnings per share excludes the Company’s performance-based RSUs that are based on Adjusted EBITDA targets because the performance criteria had not been contingently achieved and therefore the RSUs were not contingently issuable. For the years ended December 31, 2012 and 2010, the dilutive effect of potential future issuances of common stock underlying the Company’s RSUs was excluded from the calculation of diluted average shares outstanding because their effect would have been anti-dilutive as the Company incurred a net loss during those years.
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2012
|
|
2011
|
|
2010
|
Weighted-average common shares outstanding—basic
|
|
15,222,462
|
|
|
15,079,771
|
|
|
10,019,098
|
|
Dilutive effect of stock-based compensation awards outstanding
|
|
—
|
|
|
4,064
|
|
|
—
|
|
Weighted-average common shares outstanding—diluted
|
|
15,222,462
|
|
|
15,083,835
|
|
|
10,019,098
|
|
Dilutive securities aggregating approximately
1.8 million
,
1.9 million
and
2.0 million
outstanding during the years ended December 31, 2012, 2011 and 2010, respectively, were not included in the computation of diluted earnings per share because the impact would be anti-dilutive to the earnings per share calculation
.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740
, Income Taxes
(“Topic 740”), which requires the recognition of deferred tax assets and liabilities for the expected future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, representing future tax benefits, are reduced by a valuation allowance when the determination can be made that it is “more likely than not” that all or a portion of the related tax asset will not be realized. The deferred tax provision or benefit represents the annual change in deferred tax assets and liabilities, excluding any amounts accounted for as components of goodwill or accumulated other comprehensive income (loss), including the effect of foreign currency translation thereon. While the Company believes it has adequately provided for its income tax receivable or liabilities and its deferred tax assets or liabilities in accordance with FASB income tax guidance, adverse determination by taxing authorities or changes in tax laws and regulations could have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows. Income taxes are further discussed in Note 7.
Warranties
The Company offers warranties on certain products that it sells. The specific terms and conditions of these warranties vary depending on the product sold, the country in which the product is sold and arrangements with the customer. The Company estimates the costs that may be incurred under its warranties and records a liability for such costs. Factors that affect the Company’s warranty liability include the number of units sold, historical and anticipated rates of warranty claims, cost per claim and new product introduction. The Company periodically assesses the adequacy of its recorded warranty claims and adjusts the amounts as necessary. Below represents the changes in the Company’s warranty liability for 2012 and 2011:
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Balance at
Beginning
of Year
|
|
Charged to
Revenue or Cost
of Sales
|
|
Effect of Foreign
Currency
Translation
|
|
Deduction
from
Reserves
|
|
Balance at
End of
Year
|
For the year-ended December 31, 2012
|
|
$
|
2,121
|
|
|
$
|
1,424
|
|
|
$
|
8
|
|
|
$
|
(1,705
|
)
|
|
$
|
1,848
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year-ended December 31, 2011
|
|
$
|
1,688
|
|
|
$
|
2,586
|
|
|
$
|
(31
|
)
|
|
$
|
(2,122
|
)
|
|
$
|
2,121
|
|
Commitments and Contingencies
The Company provides accruals for all direct costs associated with the estimated resolution of contingencies at the earliest date at which it is deemed probable that a liability has been incurred and the amount of such liability can be reasonably estimated. Costs accrued have been estimated based on consultation with legal counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies and outcomes.
New Accounting Standards
As a result of adopting certain new or amended accounting pronouncements in the first quarter of 2012, we have enhanced our disclosure of assets and liabilities measured at fair value and elected to continue use of credit valuation adjustments on a net basis by counterparty as part of the calculation to determine the fair value of our derivatives. Our disclosures now include: (1)
significant transfers between Levels 1 and 2 of the fair value hierarchy, if any; (2) additional quantitative and qualitative information regarding fair value measurements categorized as Level 3 of the fair value hierarchy; and (3) the hierarchy classification for items whose fair value is not recorded on our Consolidated Balance Sheets but was disclosed previously in our Notes to Consolidated Financial Statements. Additionally, we have presented comprehensive income in a separate financial statement entitled Consolidated Statements of Comprehensive Loss.
On February 5, 2013, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance related to reporting of amounts reclassified out of accumulated other comprehensive income. This pronouncement affects the reporting of reclassification adjustments from accumulated other comprehensive income. The new requirements will take effect for quarterly and annual reporting periods beginning after December 15, 2012. We are required to adopt these provisions in the first quarter of 2013. The guidance affects financial statement presentation only, and we do not expect the adoption of these requirements to have a material effect on our financial statements.
Subsequent Events
At March 3, 2013, management assessed if there had been any reportable subsequent events that had occurred between December 31, 2012 and the present time, and determined that none had occurred.
3. Goodwill, Intangible Assets and Deferred Financing Costs
At December 31, 2012, the Company had cumulative goodwill impairment of
$265.9
million. The following table provides changes in the carrying amount of goodwill by segment for the years ended December 31, 2012 and 2011:
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|
Clothing
|
|
Roll
Covers
|
|
Total
|
Balance at December 31, 2010
|
|
$
|
41,564
|
|
|
$
|
19,394
|
|
|
$
|
60,958
|
|
Goodwill impairment
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency translations
|
|
(1,624
|
)
|
|
(214
|
)
|
|
(1,838
|
)
|
Balance at December 31, 2011
|
|
39,940
|
|
|
19,180
|
|
|
59,120
|
|
Goodwill impairment
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency translations
|
|
1,839
|
|
|
168
|
|
|
2,007
|
|
Balance at December 31, 2012
|
|
$
|
41,779
|
|
|
$
|
19,348
|
|
|
$
|
61,127
|
|
The components of intangible assets and deferred financing costs are summarized as follows at:
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|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
Patents and licenses
|
|
$
|
31,920
|
|
|
$
|
31,920
|
|
Less accumulated amortization
|
|
(29,559
|
)
|
|
(28,607
|
)
|
Net patents and licenses
|
|
2,361
|
|
|
3,313
|
|
Trademarks
|
|
18,920
|
|
|
18,920
|
|
Less accumulated amortization
|
|
(16,505
|
)
|
|
(15,245
|
)
|
Net trademarks
|
|
2,415
|
|
|
3,675
|
|
Other intangibles
|
|
946
|
|
|
951
|
|
Less accumulated amortization
|
|
(557
|
)
|
|
(469
|
)
|
Net other intangibles
|
|
389
|
|
|
482
|
|
Deferred financing costs
|
|
18,951
|
|
|
17,062
|
|
Less accumulated amortization
|
|
(5,438
|
)
|
|
(1,892
|
)
|
Net deferred financing costs
|
|
13,513
|
|
|
15,170
|
|
Net amortizable intangible assets and deferred financing costs
|
|
$
|
18,678
|
|
|
$
|
22,640
|
|
Amortization expense for patents, licenses, trademarks and other intangibles amounted to
$2,305
,
$2,305
and
$2,318
for the years ended December 31, 2012, 2011 and 2010, respectively.
As of December 31, 2012, the estimated annual amortization expense for patents, licenses and trademarks and other intangibles for each of the succeeding five years total
$4,334
as follows:
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|
|
|
2013
|
$
|
1,765
|
|
2014
|
1,514
|
|
2015
|
359
|
|
2016
|
359
|
|
2017
|
337
|
|
4. Notes Payable
In July of 2012, the Company's Austrian subsidiary entered into a
$7,714
working capital loan with a local banking institution. At December 31, 2012, the balance of this working capital loan is
$7,911
. This loan bears interest at a variable rate, which was
2.15%
at December 31, 2012, and has a initial maturity date of June 30, 2013, with a
twelve
month roll-over option. Proceeds from this loan were used to pay down the Credit Facility.
5. Long-term Debt
At
December 31, 2012
and 2011, long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31.
|
|
2012
|
|
2011
|
Senior Bank Debt (Secured):
|
|
|
|
First lien debt, payable quarterly, U.S. Dollar denominated–LIBOR
(minimum 1.25%) plus 5.00% (6.25%) as of December 31, 2012
|
$
|
104,557
|
|
|
$
|
119,366
|
|
First lien debt, payable quarterly, Euro denominated–EURIBOR
(minimum 1.25%) plus 5.00% (6.25%) as of December 31, 2012
|
95,979
|
|
|
107,771
|
|
|
200,536
|
|
|
227,137
|
|
Senior Notes (Unsecured), payable semi-annually–U.S. Dollar denominated interest rate fixed at 8.875%, matures June of 2018
|
236,410
|
|
|
240,000
|
|
Other Long-Term Debt:
|
|
|
|
Unsecured, interest rate fixed at 2.00%, Euro denominated
|
135
|
|
|
228
|
|
Unsecured, interest rate fixed at 1.31% to 3.40%, Yen denominated
|
—
|
|
|
1,689
|
|
|
437,081
|
|
|
469,054
|
|
Less current maturities
|
2,397
|
|
|
3,548
|
|
Total
|
$
|
434,684
|
|
|
$
|
465,506
|
|
During 2012, 2011 and 2010, the Company recorded
$38.2 million
,
$39.5 million
, and
$57.9 million
in interest expense, respectively.
On May 26, 2011, the Company completed a refinancing transaction, which replaced certain of the then outstanding indebtedness with
$240 million
aggregate principal amount of
8.875%
senior unsecured notes (the “Notes”) and a new approximately
$278 million
multi-currency senior secured credit facility (as subsequently amended, the “Credit Facility”), comprised of approximately
$248 million
of senior secured term loans and a
$30 million
senior secured revolving credit facility. The interest rates under the Credit Facility are calculated, at the Company's option, at the Alternate Base Rate as defined in the Credit Facility, LIBOR or EURIBOR, subject to a minimum of
2.25%
,
1.25%
and
1.25%
, respectively, plus, in each case, a margin.
Notes
Interest on the Notes is payable semiannually in cash in arrears on June 15 and December 15 of each year, and commenced on December 15, 2011. The Notes are the Company's senior unsecured obligations and are guaranteed by each of its direct and indirect wholly-owned domestic subsidiaries (the “Notes Guarantors”). They rank equal in right of payment with its existing and future senior indebtedness and senior in right of payment to any of its existing and future subordinated indebtedness. The Notes are effectively subordinated to all of the Company's secured debt, including the Credit Facility and related guarantees, to the extent of the value of the assets securing such debt and structurally subordinated to all of the existing and future liabilities of its subsidiaries that do not guarantee the Notes. Subject to the terms of the Credit Facility, the Notes may be redeemed by the Company at specified redemption prices which vary depending on the timing of the redemption.
The Notes contain customary covenants that, subject to certain exceptions, restrict the Company’s ability to enter into certain transactions. Management believes the Company is in compliance with these covenants at
December 31, 2012
, and believes it will continue to be in compliance with these covenants in the near future.
In December of 2012, the Company repurchased in open market transactions
$3,590
principal amount of the Notes. The aggregate purchase price, plus accrued and unpaid interest, was
$3,257
. These repurchases resulted in a gain on extinguishment of debt, net of the write-off of unamortized discounts and fees of
$90
, of
$243
for the year ended December 31, 2012, The gains from the repurchases are included in the Consolidated Statement of Operations as Gain (loss) on extinguishment of debt.
Credit Facility
The Credit Facility provides for (i) a
six
-year
$125.0 million
senior secured term loan facility, borrowed by the Company, the proceeds of which were used to refinance certain of its existing indebtedness; (ii) a
six
-year
€87.0 million
senior secured term loan facility, borrowed by Xerium Technologies Limited, a wholly-owned indirect subsidiary of the Company organized under the laws of England and Wales, the proceeds of which were used to refinance certain of its existing indebtedness; (iii) a
five
-year
$30.0 million
senior secured revolving credit facility, available to the Company; and an uncommitted incremental amount of
$10 million
, the proceeds of which are used for working capital and general corporate purposes and include sub-limits available for letters of credit (the “Revolving Facility”); (iv) and an uncommitted incremental credit facility (the “Incremental Facility”) allowing for increases under the Revolving Facility and Term Loans with the same terms, and borrowing of new tranches of term loans, up to an aggregate principal amount not to exceed the greater of (i)
$100.0 million
and (ii) the Company's Adjusted EBITDA over the prior
12
-month period, provided that increases under the Revolving Facility shall not exceed
$35.0 million
.
The loans under the Credit Facility are required to be permanently repaid with 100% of the net proceeds of assets sales, dispositions, issuances of certain debt obligations and insurance, in each case, subject to certain exceptions and
50%
of annual excess cash flow. The Credit Facility requires the Company to make annual principal payments (payable in quarterly installments) equal to
1%
per annum with respect to the Term Loans with the remaining amount due at final maturity.
The obligations under the Credit Facility are guaranteed by all of our existing and future direct and indirect subsidiaries that are organized in the United States (subject to certain exceptions in the case of immaterial subsidiaries and joint ventures) and certain of the Company's direct and indirect foreign subsidiaries, provided that non-U.S. guarantors are only liable for obligations of Xerium Technologies Limited and certain other non-U.S. guarantors. The loans are secured by a first-priority perfected security interest in substantially all of the assets.
Credit Facility Amendment
To facilitate the Company's restructuring initiatives, on June 28, 2012, the Company entered into an amendment to our Credit Facility. Among other revisions to the Credit Facility, the amendment allows for additional add backs to Adjusted EBITDA annually though 2015 up to the lesser of
$15.0 million
or the unused portion of its annual capital expenditure limit; increases the maximum leverage ratios between the fiscal quarter ending September 30, 2012 and the fiscal quarter ending December 31, 2013; amends the definition of the leverage ratio to reduce debt by unrestricted surplus cash held by the Company and increases the interest rate on the term loans by
0.75%
annually for eighteen months following the effective date of the amendment. The Company paid
$1.5 million
in deferred financing costs related to the amendment. This amount is included in intangible assets on the Consolidated Balance Sheets at December 31, 2012.
Covenants
The Credit Facility contains customary covenants that, subject to certain exceptions, restrict the Company's ability to enter into certain transactions and engage in certain activities. In addition, the Credit Facility includes specified financial covenants requiring the Company to maintain certain consolidated leverage and interest coverage ratios. The consolidated leverage ratio is calculated by dividing the total of its total gross debt, at average currency exchange rates for the last twelve months, less surplus cash by Adjusted EBITDA. In order to be in compliance with this covenant, as amended, the Company was required to have a ratio of no more than
5.50
to 1.00 at
December 31, 2012
. This ratio decreases after March 31, 2013 by 25-50 basis points in various periods to a minimum of
3.25
to 1.00 for the quarter ending March 31, 2017 and all subsequent periods. The interest coverage ratio is calculated by dividing Adjusted EBITDA by interest expense, net of mark to market movements on hedging instruments and amortization of deferred financing costs. In order to be in compliance with this covenant, the Company must have a ratio of at least
2.25
to 1.00 at
December 31, 2012
. In various periods subsequent to
December 31, 2012
, this ratio increases by increments of 25 basis points to
3.25
to 1.00 for the quarter ended December 31, 2016 and thereafter. Each of these covenants is calculated at the end of each quarter and is based on a rolling twelve month period. In addition, the terms of the Credit Facility limit the Company's ability to make capital expenditures in excess of
specified amounts. The Company is in compliance with all of these covenants at
December 31, 2012
, and believes it will continue to be in compliance with these covenants in the foreseeable future.
The aggregate scheduled principal payments over the term of the Credit Facility, the Notes and other existing long-term debt are shown below:
|
|
|
|
|
|
|
|
Total Scheduled
Principal Payments including
balloon payments
(in USD)
|
2013
|
$
|
2,397
|
|
2014
|
2,532
|
|
2015
|
2,397
|
|
2016
|
2,397
|
|
2017
|
190,948
|
|
2018 and thereafter
|
236,410
|
|
|
|
|
$
|
437,081
|
|
|
|
Additionally, the following table outlines the estimated future interest payments to be made under the Credit Facility and Notes over the term of the obligations:
|
|
|
|
|
|
|
|
Total Estimated
Interest Payments
Converted into U.S. Dollars
at December 31, 2012
Exchange Rates
(in USD thousands)
|
2013
|
$
|
33,769
|
|
2014
|
33,045
|
|
2015
|
32,909
|
|
2016
|
32,775
|
|
2017
|
25,620
|
|
2018 and thereafter
|
10,491
|
|
|
|
|
$
|
168,609
|
|
|
|
As of
December 31, 2012
, an aggregate of
$19.5 million
is available for additional borrowings under the Credit Facility. This availability represents the
$30.0 million
revolving facility less
$10.5 million
of that facility committed for letters of credit. Additionally, at
December 31, 2012
, the Company had approximately
$5.0 million
available for borrowings under other small lines of credit.
As of
December 31, 2012
and December 31, 2011, the carrying value of the Company’s long-term debt was
$437.1 million
and
$469.1 million
, respectively, and exceeded its fair value of approximately
$410.1 million
and
$439.1 million
, respectively. The Company determined the fair value of its debt utilizing significant other observable inputs (Level 2 of the fair value hierarchy).
6. Derivatives and Hedging
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. From time to time, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known cash amounts, the value of which are determined by interest rates or foreign exchange rates.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives when using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company may use interest rate caps and interest rate swaps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges protect the Company from increases in interest rates above the strike rate of the interest rate cap. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
On August 8, 2011, the Company entered into
two
interest rate cap agreements with certain financial institutions, with notional amounts totaling
$94.6 million
at December 31, 2012, whereby the Company limits its variable interest rate exposure to the strike rate of the interest rate cap agreements. Under the terms of the interest rate cap agreements, the Company will receive payments based on the spread in rates if the three-month LIBOR rate increases above the negotiated cap rates of
3.0%
. The interest rate caps are considered designated hedging instruments, classified as Level 2 in the fair value hierarchy. Changes in fair value will be deferred in other comprehensive income and the cap purchase price will be reclassified from other comprehensive income into earnings as interest expense over the life of the agreements. The fair value of the interest rate caps was
$16
at December 31, 2012 and
$175
at December 31, 2011. Unrecognized losses of
$(644)
and
$(520)
were recorded in other comprehensive income at December 31, 2012 and 2011.
The Company had previously entered into interest rate swaps to hedge variable interest related to its prior senior debt and foreign exchange contracts to protect the U.S. dollar value of certain assets and obligations. On December 31, 2009, the Company terminated with the counterparties all of its outstanding interest rate swap liabilities of
$20,036
and converted them into notes payable to such counterparties. The Company has not entered into any new interest rate swap agreements since that time.
The Company's prior interest rate swaps were considered designated hedging instruments through August 31, 2009. Effective September 1, 2009, the interest rate swaps were no longer designated hedging instruments. During 2010, the Company amortized the mark to market balances related to these interest rate swaps from accumulated other comprehensive income to interest expense. The Company recognized an expense of
$9,721
related to its derivative financial instruments in the year ended December 31, 2010, which was included in interest expense in its Consolidated Statements of Operations for those same periods. In addition, the year ended December 31, 2010 Consolidated Statements of Operations included the amortization of an additional
$735
from accumulated other comprehensive income to interest expense, as the Company determined it was probable that interest payments on certain debt would not occur.
Although these interest rate swaps were subject to mark to market accounting through earnings effective September 1, 2009, prior to their termination with the counterparties as discussed above, they effectively fixed, from a cash flow hedge perspective through December 31, 2010, the interest rate at
10.75%
on approximately
79%
of the term loan portion of the Company's pre-petition credit facility. As a result of the termination of the interest rate swaps, the interest rate on the term loan portion of the Prior Credit Facility was no longer effectively fixed through December 31, 2010, the original term of the swaps.
Non-designated Hedges of Foreign Exchange Risk
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to foreign exchange rates, but do not meet the strict hedge accounting requirements of Topic 815. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly to earnings.
The Company, from time to time, may enter into foreign exchange forward contracts to fix currencies at specified rates based on expected future cash flows to protect against the fluctuations in cash flows resulting from sales denominated in foreign currencies (cash flow hedges). Additionally, to manage its exposure to fluctuations in foreign currency on intercompany balances and certain purchase commitments, the Company from time to time may use foreign exchange forward contracts (fair value hedges).
As of December 31, 2012 and 2011, the Company had outstanding derivatives that were not designated as hedges in qualifying hedging relationships. The value of these contracts is recognized at fair value based on market exchange forward rates and is recorded in other assets (liabilities) on the Consolidated Balance Sheet. The fair value of these derivatives at December 31, 2012 and 2011 was
$357
and
$123
, respectively. The change in fair value of these contracts is included in foreign exchange gain (loss) and was
$647
and
$(1,061)
for the years ended December 31, 2012 and 2011, respectively, and is recorded in the Consolidated Statements of Operations.
The following represents the notional amounts sold and purchased for the year ended December 31, 2012:
|
|
|
|
|
|
|
|
|
|
Foreign Currency Derivative (as of December 31, 2012)
|
|
Notional Sold
|
|
Notional Purchased
|
Non-designated hedges of foreign exchange risk
|
|
$
|
24,596
|
|
|
$
|
(10,260
|
)
|
Fair Value of Derivatives Under ASC Topic 820
ASC Topic 820,
Fair Value Measurements and Disclosures
(“Topic 820”), emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, Topic 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs including fair value of investments that do not have the ability to redeem at net asset value as of the measurement date, or during the first quarter following the measurement date. The derivative assets or liabilities are typically based on an entity’s own assumptions, as there is little, if any, market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and the Company considers factors specific to the asset or liability.
To comply with Topic 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2012 and December 31, 2011, respectively, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy. The Company does not have any derivatives valued using significant unobservable inputs (Level 3) as of December 31, 2012 or 2011. The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and 2011, aggregated by the level in the fair value hierarchy within which those measurements fall.
As of December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Total
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observables
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Derivatives
|
|
$
|
357
|
|
|
$
|
—
|
|
|
$
|
357
|
|
|
$
|
—
|
|
Total
|
|
$
|
357
|
|
|
$
|
—
|
|
|
$
|
357
|
|
|
$
|
—
|
|
As of December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Total
|
|
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
|
|
Significant Other
Observables
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Derivatives
|
|
$
|
630
|
|
|
$
|
—
|
|
|
$
|
630
|
|
|
$
|
—
|
|
Total
|
|
$
|
630
|
|
|
$
|
—
|
|
|
$
|
630
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
(507
|
)
|
|
$
|
—
|
|
|
$
|
(507
|
)
|
|
$
|
—
|
|
Total
|
|
$
|
(507
|
)
|
|
$
|
—
|
|
|
$
|
(507
|
)
|
|
$
|
—
|
|
7. Income Taxes
The components of domestic and foreign (loss) income before the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
U.S
|
|
$
|
(20,595
|
)
|
|
$
|
(21,683
|
)
|
|
$
|
(75,616
|
)
|
Foreign
|
|
(1,002
|
)
|
|
40,552
|
|
|
20,796
|
|
Total
|
|
$
|
(21,597
|
)
|
|
$
|
18,869
|
|
|
$
|
(54,820
|
)
|
The components of the income tax (benefit) provision are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Current:
|
|
|
|
|
|
|
U.S.
|
|
$
|
749
|
|
|
$
|
788
|
|
|
$
|
1,088
|
|
Foreign
|
|
3,938
|
|
|
9,557
|
|
|
8,564
|
|
Total current
|
|
4,687
|
|
|
10,345
|
|
|
9,652
|
|
Deferred:
|
|
|
|
|
|
|
U.S
|
|
(206
|
)
|
|
(93
|
)
|
|
—
|
|
Foreign
|
|
(8,043
|
)
|
|
427
|
|
|
8,614
|
|
Total deferred
|
|
(8,249
|
)
|
|
334
|
|
|
8,614
|
|
Total provision
|
|
$
|
(3,562
|
)
|
|
$
|
10,679
|
|
|
$
|
18,266
|
|
The tax effect of temporary differences which give rise to deferred income tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Deferred tax assets arising from:
|
|
|
|
|
Loss carryforwards
|
|
$
|
115,620
|
|
|
$
|
111,409
|
|
Intangible assets, net
|
|
5,237
|
|
|
8,744
|
|
Pension and other benefit accruals
|
|
18,912
|
|
|
18,611
|
|
Tax credits
|
|
1,600
|
|
|
1,576
|
|
Investments
|
|
2,721
|
|
|
4,285
|
|
Interest and finance fees
|
|
2,245
|
|
|
2,076
|
|
Other allowances and accruals, net
|
|
13,954
|
|
|
8,975
|
|
Total
|
|
160,289
|
|
|
155,676
|
|
Deferred tax liabilities arising from:
|
|
|
|
|
Property and equipment, net
|
|
31,973
|
|
|
34,498
|
|
Intangible assets, net
|
|
2,612
|
|
|
2,570
|
|
Foreign income inclusions
|
|
19,679
|
|
|
22,387
|
|
Other allowances and accruals, net
|
|
76
|
|
|
337
|
|
Total
|
|
54,340
|
|
|
59,792
|
|
Valuation allowance
|
|
112,143
|
|
|
105,388
|
|
Net deferred tax liability
|
|
$
|
6,194
|
|
|
$
|
9,504
|
|
Deferred taxes are recorded as follows in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Current Deferred Tax Asset, Net
|
|
$
|
6,213
|
|
|
$
|
6,455
|
|
Current Deferred Tax Liability, Net
|
|
387
|
|
|
855
|
|
Noncurrent Deferred Tax Asset, Net
|
|
4,562
|
|
|
3,478
|
|
Noncurrent Deferred Tax Liability, Net
|
|
16,582
|
|
|
18,582
|
|
Net Deferred Tax Liability
|
|
$
|
6,194
|
|
|
$
|
9,504
|
|
The Company utilizes the asset and liability method for accounting for income taxes in accordance with ASC Topic 740
, Income Taxes
(“Topic 740”). Under Topic 740, deferred tax assets and liabilities are determined based on the difference between their financial reporting and tax basis. The assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company reduces its deferred tax assets by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In making this determination, the Company evaluates all available information including the Company’s financial position and results of operations for the current and preceding years, as well as any available projected information for future years.
As of December 31, 2012, the Company had a valuation allowance in place for certain of its deferred tax assets due to the Company’s accumulated loss position, and its uncertainty around the future profitability in certain of its tax jurisdictions. The valuation allowance primarily relates to deferred tax assets for available net operating loss carry forwards in the United States, the United Kingdom, Canada, Germany, Sweden, France, Australia, China, Vietnam and Spain. While the Company believes it has adequately provided for its income tax assets and liabilities in accordance with the FASB income tax guidance, it recognizes that adverse determinations by taxing authorities, or changes in tax laws and regulations could have a material adverse effect on its consolidated financial position, results of operations or cash flows.
For the years ended December 31, 2012 and 2011, the benefit (provision) for income taxes was
$3,562
and
$(10,679)
, respectively. The Company's effective income tax rate for the year ended December 31, 2012 was
16.5%
as compared with our effective rate for the year ended December 31, 2011 of
56.6%
. The Company's effective income tax rate is primarily impacted by income the Company earns in tax paying jurisdictions relative to income it earns in non-tax paying jurisdictions. The majority of income recognized for purposes of computing the Company's effective tax rate is earned in countries where the statutory income tax rates range from
25%
to
41%
. However, permanent income adjustments recorded against pre-tax earnings may result in an effective tax rate that is higher or lower than the statutory tax rate in these jurisdictions. The Company generates losses in certain jurisdictions for which it receives no tax benefit as the deferred tax assets in these jurisdictions (including the net operating losses) are fully reserved in its valuation allowance. For this reason, the Company recognizes minimal income tax expense or benefit in these jurisdictions, of which the most material jurisdictions are the United States, the
United Kingdom and Australia. Due to these reserves, the geographic mix of its pre-tax earnings has a direct correlation with how high or low its annual effective tax rate is relative to consolidated earnings.
For the years ended December 31, 2012 and 2011, tax expense included a benefit of approximately
$250
and
$328
for a Chinese tax holiday scheduled to expire in the year ending December 31, 2012.
As of December 31, 2012, the Company had a gross unrecognized tax benefit of
$3,274
, excluding interest and penalties. The unrecognized tax benefit decreased by approximately
$5,346
during the year ended December 31, 2012 as a result of foreign currency effects, statute expirations, audit settlements and ongoing changes in currently reserved positions.
As discussed in Note 1 "Company Description", the Company emerged from Chapter 11 bankruptcy protection on May 25, 2010. The Company’s review of the potential impact of the overall plan of reorganization resulted in no material change in its tax position. In December 2010, as a result of the debt reorganization, the Company provided for the impairment of a portion of the deferred tax asset related to its German federal and trade loss carry forwards.
As of December 31, 2012, the Company has pre-tax net operating loss carry-forwards for U.S. federal income tax purposes of approximately
$175,499
that expire on various dates from 2026 through 2032 and federal tax credits of approximately
$167
that either expire on various dates or can be carried forward indefinitely. As of December 31, 2012, the net operating loss carry-forwards and federal tax credits are fully reserved in our valuation allowance. The Company has foreign federal net operating loss carry-forwards of approximately
$154,685
and capital loss carry forwards of
$8,327
, the majority of which can be carried forward indefinitely, and federal and provincial tax credits of approximately
$1,434
that begin to expire primarily in 2024 or are carried forward indefinitely. As of December 31, 2012,
$123,439
,
$8,327
and
$1,434
, of foreign federal net operating loss carry-forwards, capital loss carry-forwards and federal and provincial tax credits, respectively, are reserved in our valuation allowance.
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately
$107,899
at December 31, 2012. Those earnings are considered to be indefinitely reinvested for continued use in foreign operations except for Argentina, Brazil and Mexico. The amount of undistributed earnings not considered to be permanently reinvested for which we have recorded a deferred tax liability is
$61.4 million
. Federal income taxes are provided on the portion of the income of foreign subsidiaries that is expected to be remitted to the United States and be taxable. For those countries for which earnings are considered to be indefinitely reinvested, no provision for income taxes or withholding taxes has been provided. Upon distribution of those earnings in the form of dividends or otherwise, the Company may be subject to both income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various jurisdictions. Determination of the amount of unrecognized deferred income tax liability or withholding taxes is not practicable because of the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credit carry-forwards and net operating loss carry-forwards would be available to reduce some portion of the liability. The Company has not provided U.S. deferred taxes on cumulative earnings of foreign subsidiaries that it considers to be permanently reinvested. These earnings relate to on-going operations, and were approximately
$46,537
as of December 31, 2012.
As of December 31, 2012, the gross amount of unrecognized tax benefits was approximately
$3,274
, exclusive of interest and penalties. Of this balance, if the Company were to prevail on all unrecognized tax benefits recorded, approximately
$3,274
would benefit the effective tax rate. The Company's unrecognized tax benefits decreased approximately
$5,346
and
$667
during the years ended December 31, 2012 and 2011, respectively. During the next twelve months, management estimates
$974
of the Company's gross unrecognized tax benefit will reverse due to statute of limitations expiring which relate to various miscellaneous items and will benefit the effective tax rate. The company regularly evaluates, assesses and adjusts the related liabilities in light of changing facts and circumstances, which could cause the effective tax rate to fluctuate from period to period.
The Company accrues for certain known and reasonably anticipated income tax obligations after assessing the likely outcome. In the event that actual results differ from these accruals or if the Company becomes subject to a tax obligation for which the Company has made no accrual, the Company may need to make adjustments, which could materially impact the financial condition and results of operations. For example, taxing authorities may disagree with the Company’s tax accounting methodologies and may subject the Company to inquiries regarding such taxes, which potentially could result in additional income tax assessments. In accordance with ASC 740-10-25-6, the Company does not accrue for potential income tax obligations if management deems a particular tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. In making this determination, the Company assumes that the taxing authorities will have access to all relevant facts and information in accordance with ASC 740-10-25-7.
The tax years 2000 through 2012 remain open to examination in the Company's domestic jurisdiction and the tax years 2005 through 2012 remain open to examination in the major foreign taxing jurisdictions to which the Company and its subsidiaries are subject. There are currently no U.S. Federal or state audits or examinations underway.
In November 2010, the Company concluded an audit relating to its Canadian subsidiary for tax years 2005 through 2007, and established a reserve in December of 2010 to account for the resolution of this audit.
In November of 2011, the Federal Revenue Department of the Ministry of Finance of Brazil (“FRD”) issued a tax assessment against the Company’s indirect subsidiary, Xerium Technologies Brasil Indústria e Comércio S.A. (“Xerium Brazil”), challenging the goodwill recorded in the 2005 acquisition of Wangner Itelpa and Huyck Indústria e Comércio S.A. by Robec Brasil Participações Ltda. This assessment denies the amortization of that goodwill against net income for the years 2006 through 2010 and seeks payment of approximately
$41,760
, (subject to currency exchange rates) of tax, penalties and interest. The Company believes the transactions in question (i) complied with Brazilian tax and accounting rules, (ii) were effected for a legitimate business purpose, to consolidate the Company’s operating activities in Brazil into one legal entity, and (iii) were properly documented and declared to Brazilian tax and corporate authorities. Based on the foregoing, Xerium Brazil filed a response disputing the tax assessment at the first administrative level of appeal within the FRD in December 2011. Based on the foregoing, Xerium Brazil filed a response with the FRD in December 2011 disputing the tax assessment. In December 2012, an administrative panel at the first administrative appeals level within the FRD rendered a decision upholding the assessment, but reducing the penalties claimed by fifty percent. This decision reduced the total assessment by approximately
$11,246
to
$30,514
. On January 18, 2013, Xerium Brazil appealed the decision of this first administrative panel to the second of three administrative appeals courts potentially available to it within the FRD.
Although there can be no assurances, at year-end December 31, 2012 the Company believed it was more likely than not that it would prevail on every tax position under examination and therefore it did not accrue any amounts related to this assessment in 2012. Because this dispute is at a preliminary stage for resolution with the FRD, the Company cannot assure a favorable outcome and cannot currently estimate the timing of the final resolution of this matter. The Company believes it has meritorious defenses, is continuing to vigorously contest this matter and, if the administrative courts of the FRD do not rule in the Company's favor, intends to appeal its case to the Brazilian judicial courts. However, if management's view of its position and the probable outcome of assessment changes or the FRD’s position is sustained by Brazilian judicial courts, the amount accrued would adversely impact the Company’s financial condition and results of operations in the period in which any such determination or decision is made.
The Company believes that it has made adequate provisions for all income tax uncertainties.
A reconciliation of the balances of the unrecognized tax benefits is as follows, (excludes interest and penalties):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Balance as of January 1
|
|
$
|
8,620
|
|
|
$
|
9,287
|
|
|
$
|
5,023
|
|
Gross (decreases) increases—tax positions in prior period due to settlements
|
|
(5,117
|
)
|
|
34
|
|
|
(215
|
)
|
Gross (decreases) increases—tax positions in prior period-other
|
|
(170
|
)
|
|
(195
|
)
|
|
524
|
|
Gross decreases—related to lapse in statute of limitations
|
|
(371
|
)
|
|
(549
|
)
|
|
(565
|
)
|
Gross increases—tax positions in current period
|
|
186
|
|
|
205
|
|
|
4,520
|
|
Currency effects
|
|
126
|
|
|
(162
|
)
|
|
—
|
|
Balance at December 31
|
|
$
|
3,274
|
|
|
$
|
8,620
|
|
|
$
|
9,287
|
|
The Company’s policy is to recognize interest and penalties related to income tax matters as income tax expense and accordingly, the Company recorded a
$658
benefit, including currency effects, and a
$209
benefit, including currency effects, for interest and penalties during the years ended December 31, 2012 and 2011, respectively. As of December 31, 2012 and 2011, the Company recorded accrued interest and penalties related to uncertain tax positions of approximately
$2,016
and
$2,508
, respectively.
The provision for income taxes differs from the amount computed by applying the U.S. statutory tax rate (
35%
) to income before income taxes, due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Book (loss) income at U.S. 35% statutory rate
|
|
$
|
(7,559
|
)
|
|
$
|
6,604
|
|
|
$
|
(19,187
|
)
|
State income and other taxes due, net of federal benefit
|
|
645
|
|
|
1,070
|
|
|
1,710
|
|
Foreign tax rate differential
|
|
663
|
|
|
(1,799
|
)
|
|
374
|
|
Dividends and other foreign income
|
|
9,602
|
|
|
2,638
|
|
|
7,975
|
|
Change in valuation allowance
|
|
4,325
|
|
|
910
|
|
|
(10,272
|
)
|
Tax rate changes
|
|
1,798
|
|
|
2,263
|
|
|
124
|
|
Tax credits and refunds
|
|
(427
|
)
|
|
(41
|
)
|
|
(424
|
)
|
Goodwill
|
|
(2,512
|
)
|
|
(2,933
|
)
|
|
(2,825
|
)
|
Change in unrecognized tax benefits and tax reserves
|
|
(6,004
|
)
|
|
(343
|
)
|
|
4,606
|
|
Provision to return adjustments
|
|
(3,277
|
)
|
|
160
|
|
|
29,408
|
|
Other, net
|
|
(816
|
)
|
|
2,150
|
|
|
400
|
|
Financing costs
|
|
—
|
|
|
—
|
|
|
6,377
|
|
Total
|
|
$
|
(3,562
|
)
|
|
$
|
10,679
|
|
|
$
|
18,266
|
|
The effective tax rate on continuing operations for the year ended December 31, 2012 varied from the statutory rate of
35%
primarily due to the tax effect on dividends and other foreign income, changes in valuation allowances and the change in unrecognized tax benefits and tax reserves. The amount for dividends and other foreign income was
$9,602
. The change in the valuation allowance of
$4,325
relates to a reduction in domestic deferred tax assets of
($268)
, offset by an increase in deferred tax assets for foreign jurisdictions primarily related to current year losses in jurisdictions for which the Company has determined no benefit should be recorded, as well as additional items that are not currently deductible. The change in unrecognized tax benefits and tax reserves were from tax audit settlements which resulted in the reversal of tax expense of approximately
$5,188
, statute of limitations expiring which allowed the Company to reverse reserves of approximately
$1,094
and the recording of net additional reserves of
$(278)
.
For the year ended December 31, 2011, the Company reported the tax effect for the change in valuation allowance and provision to return adjustments in the amounts of
$910
and
$160
, respectively. Given that all U.S. deferred tax assets are fully reserved in the valuation allowance, the prior year domestic loss resulted in an increase to the valuation allowance of approximately
$7,589
. This increase was partially offset by domestic permanent income adjustments in 2011 primarily related to foreign income inclusions of
$(2,989)
and state net operating loss of
$(1,648)
.
In 2011 there were approximately
$(11,117)
of pre-tax losses generated in foreign jurisdictions where deferred tax assets are fully reserved. The net pretax losses generated in 2011 resulted in an increase in the available net operating loss carry-forward; however, given that all deferred tax assets were fully reserved in the valuation allowance for the aforementioned loss companies, these losses resulted in an increase to the valuation allowance of approximately
$3,891
. This increase was offset by foreign adjustments in 2011 primarily related to changes in certain foreign tax rates of
$(2,278)
and a deferred tax adjustment in Canada of
($2,781)
.
For the year ended December 31, 2010, the Company reported the tax effect for the change in valuation allowance and provision to return adjustments in the amounts of
($10,272)
and
$29,408
, respectively. In 2010, the U.S. entities had pre-tax loss of
($75,616)
as compared to pre-tax loss generated in 2009 of
($92,453)
. The U.S. entities recorded permanent income adjustments in 2010, the most material of which was an adjustment of
$18,063
to reverse consolidating book eliminations that were not applicable for U.S. tax reporting purposes. The net pretax loss generated in 2010 resulted in an increase in the available net operating loss carry-forward. However, given that all U.S. deferred tax assets were fully reserved in the valuation allowance, this loss resulted in an increase to the valuation allowance of approximately
$10,847
. The U.S. entities also recorded provision to return adjustments in 2010 (related to the 2009 return) that were primarily comprised of a provision to return adjustment to the net operating loss, recorded through the deferred tax asset with an offset to the valuation allowance. The amount the U.S. entities reversed in 2010 equaled
$10,095
. In 2010 there were approximately
($30,550)
of pre-tax losses generated in foreign jurisdictions where the deferred tax assets are fully reserved in the valuation allowance. The pre-tax losses generated in 2010 created an increase in available foreign net operating loss carry-forwards; however, given that all deferred tax assets were fully reserved in the valuation allowance for the aforementioned loss companies, these losses resulted in an increase to the valuation allowance of approximately
$8,401
. Additionally, in 2009, one of the Company's U.K. subsidiaries recorded a write-down in one of its investments for statutory financial purposes. In 2010, upon finalization of the statutory audit and filing of the tax return, a provision to return adjustment was recorded through the deferred tax asset with an offset to the valuation allowance. The amount the U.K. entities reversed in 2010 equaled approximately
$19,361
.
8. Pensions, Other Post Retirement and Post Employment Benefits
Pension Plans
The Company accounts for its pensions, other post-retirement and post-employment benefit plans in accordance with ASC Topic 715,
Compensation—Retirement Benefits
(“Topic 715”). The Company has defined benefit pension plans covering substantially all of its U.S. and Canadian employees and employees of certain subsidiaries in other countries. Benefits are generally based on the employee’s years of service and compensation. These plans are funded in conformity with the funding requirements of applicable government regulations.
The Company does not fund certain plans, as funding is not required. Approximately
$51,500
of the total underfunded status of
$84,500
and
$45,900
of the total underfunded status of
$82,000
relate to these unfunded pension plans as of December 31, 2012 and 2011, respectively. The Company plans to continue to fund its U.S. defined benefit plans to comply with the Pension Protection Act of 2006. In addition, the Company also intends to fund its UK and Canadian defined benefit plans in accordance with local regulations. Additional discretionary contributions are made when deemed appropriate to meet the long-term obligations of the plans.
The Company also provides additional unfunded supplemental retirement benefits to one of its former officers and certain other former employees, which have been included in the benefit costs below.
In accordance with the provisions of ASC Topic 715-20-50,
Compensation—Retirement Benefits
(“Topic 715”), the measurement date for defined benefit plans outside the U.S. is December 31 for the years ended December 31, 2012, 2011 and 2010.
Postretirement Plans
In addition to defined benefit pension plans, the Company sponsors various unfunded defined contribution plans that provide for retirement benefits to employees, some in accordance with local government requirements.
Postemployment Obligations
The Company has postemployment plans in various countries and accounts for these plans in accordance with Topic 715
.
The Company’s postemployment obligations consist primarily of payments to be made to employees upon termination of employment, as defined, and are accrued according to local statutory laws in the respective countries. The Company’s obligation for postemployment benefits amounted to
$2,257
and
$1,915
as of
December 31, 2012
and
2011
, respectively.
Benefit Obligations and Plan Assets
A summary of the changes in benefit obligations and plan assets as of December 31, 2012 and 2011 is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
Other Postretirement
Benefit Plan
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
154,468
|
|
|
$
|
140,497
|
|
|
$
|
585
|
|
|
$
|
555
|
|
Service cost
|
|
3,867
|
|
|
3,409
|
|
|
—
|
|
|
—
|
|
Interest cost
|
|
6,708
|
|
|
6,945
|
|
|
19
|
|
|
24
|
|
Plan participants’ contributions
|
|
109
|
|
|
119
|
|
|
—
|
|
|
—
|
|
Actuarial loss (gain)
|
|
9,584
|
|
|
12,799
|
|
|
(14
|
)
|
|
9
|
|
Currency translation impact
|
|
2,275
|
|
|
(845
|
)
|
|
—
|
|
|
—
|
|
Settlement/curtailment
|
|
(697
|
)
|
|
(649
|
)
|
|
—
|
|
|
—
|
|
Administrative expenses paid
|
|
(274
|
)
|
|
(603
|
)
|
|
—
|
|
|
—
|
|
Benefits paid
|
|
(7,304
|
)
|
|
(7,204
|
)
|
|
(51
|
)
|
|
(3
|
)
|
Benefit obligation at end of year
|
|
$
|
168,736
|
|
|
$
|
154,468
|
|
|
$
|
539
|
|
|
$
|
585
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
72,477
|
|
|
$
|
70,084
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
|
8,208
|
|
|
1,912
|
|
|
—
|
|
|
—
|
|
Employer contributions
|
|
9,567
|
|
|
8,937
|
|
|
—
|
|
|
—
|
|
Plan participants’ contributions
|
|
109
|
|
|
119
|
|
|
—
|
|
|
—
|
|
Settlement
|
|
(82
|
)
|
|
(649
|
)
|
|
—
|
|
|
—
|
|
Administrative expenses paid
|
|
(274
|
)
|
|
(603
|
)
|
|
—
|
|
|
—
|
|
Currency translation impact
|
|
1,511
|
|
|
(119
|
)
|
|
—
|
|
|
—
|
|
Benefits paid
|
|
(7,304
|
)
|
|
(7,204
|
)
|
|
—
|
|
|
—
|
|
Fair value of plan assets at end of year
|
|
84,212
|
|
|
72,477
|
|
|
—
|
|
|
—
|
|
Funded status (1)
|
|
$
|
(84,524
|
)
|
|
$
|
(81,991
|
)
|
|
$
|
(539
|
)
|
|
$
|
(585
|
)
|
|
|
(1)
|
In accordance with Topic 715,
$3,749
and
$3,519
of this amount is recorded in accrued expenses as of December 31, 2012 and 2011, respectively.
|
All of the Company’s pension plans that comprise the pension obligation amounts above, have a projected benefit obligation equal to or in excess of plan assets as of the years ended December 31, 2012 and 2011. The accumulated benefit obligation was
$158,929
and
$145,254
as of the years ended December 31, 2012 and 2011, respectively.
Information for pension plans with an accumulated benefit obligation in excess of plan assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
Projected benefit obligation
|
|
$
|
168,736
|
|
|
$
|
154,468
|
|
Accumulated benefit obligation
|
|
158,929
|
|
|
145,254
|
|
Fair value of plan assets
|
|
84,212
|
|
|
72,477
|
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plan
|
|
Other Postretirement
Benefit Plans
|
|
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
2011
|
|
2010
|
Service cost
|
|
$
|
3,867
|
|
|
$
|
3,409
|
|
|
$
|
3,570
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
|
6,708
|
|
|
6,945
|
|
|
6,843
|
|
|
19
|
|
|
24
|
|
|
26
|
|
Expected return on plan assets
|
|
(4,986
|
)
|
|
(5,113
|
)
|
|
(4,409
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost
|
|
13
|
|
|
14
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of net loss (gain)
|
|
2,230
|
|
|
1,378
|
|
|
982
|
|
|
(6
|
)
|
|
(9
|
)
|
|
(7
|
)
|
Curtailment loss
|
|
—
|
|
|
—
|
|
|
126
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
|
$
|
7,832
|
|
|
$
|
6,633
|
|
|
$
|
7,127
|
|
|
$
|
13
|
|
|
$
|
15
|
|
|
$
|
19
|
|
For defined benefit plans, the estimated net loss and prior service cost to be amortized from accumulated other comprehensive loss during 2013 is expected to be
$2,299
and
$12
, respectively (unaudited).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
Other Postretirement
Benefit Plans
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Additional Information
|
|
|
|
|
|
|
|
|
Change in funded status included in accumulated other comprehensive loss, net of tax
|
|
$
|
(3,319
|
)
|
|
$
|
(13,799
|
)
|
|
N/A
|
|
N/A
|
Assumptions
Weighted-average assumptions used to determine benefit obligations at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
Other Postretirement
Benefit Plans
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Discount rate
|
|
3.85
|
%
|
|
4.49
|
%
|
|
4.00
|
%
|
|
3.50
|
%
|
Rate of compensation increase
|
|
3.56
|
%
|
|
3.61
|
%
|
|
—
|
|
|
—
|
|
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
Other Postretirement
Benefit Plans
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Discount rate
|
|
4.49
|
%
|
|
5.16
|
%
|
|
3.50
|
%
|
|
4.50
|
%
|
Expected long-term return on plan assets
|
|
6.71
|
%
|
|
7.14
|
%
|
|
—
|
|
|
—
|
|
Rate of compensation increase
|
|
3.61
|
%
|
|
3.78
|
%
|
|
—
|
|
|
—
|
|
Plan Assets
The percentage of fair value of total plan assets for funded plans are invested as follows:
|
|
|
|
|
|
|
|
|
|
Plan Assets at December 31,
|
Asset Category
|
|
2012
|
|
2011
|
Marketable equities
|
|
62
|
%
|
|
61
|
%
|
Fixed income securities
|
|
38
|
%
|
|
39
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
The Company’s plan assets are invested in the U.S., the United Kingdom (“UK”) and Canada. Plan asset investments are accounted for at cost on the trade date and are reported at fair value. Canadian plan assets totaling
$21,237
are classified as
Level 2 within the fair value hierarchy. Certain U.S. plan assets totaling
$2,916
are classified as Level 3 within the fair value hierarchy, since the Company does not have the ability to redeem at net asset value for a period longer than one quarter following the measurement date. All other plan assets totaling
$60,059
are classified as Level 1. Level 2 valuations are based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. The Company measures fair value of its Level 3 investments through the use of a net asset value per share.
In general, plan assets are exposed to various risks, such as interest rate risk, credit risk, and overall market volatility. Due to the level of risk associated with certain investments, it is reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect the amounts reported in the plan assets. The investment objective of the plans is to maximize the return on plan assets over a long time horizon, while meeting the plan obligations. Investment risk is substantially reduced by diversification of investments within particular asset classes. The expected future rate of return on plan assets is based on historic performance of bonds and equities and the higher returns expected by equity-based capital relative to debt capital. The agreements with the fund managers include a number of restrictions which are designed to ensure that only suitable investments are held. Generally, investment performance is provided to and reviewed by the Company on a quarterly basis. If any changes take place in the legal, regulatory or tax environment which impact the investment of the portfolios or the investment returns, the fund manager is expected to notify the Company immediately and to advise on their anticipated impact.
Details relating to the Company’s plan assets are as follows:
U.S. Plan Assets
: Approximately
81%
of the Company’s U.S. plan assets are invested in the U.S., of which
53%
are invested in marketable equity securities and
47%
are invested in fixed income securities managed by the fund manager. This allocation is in accordance with the strategic allocation adopted by the Company’s pension committee comprising of approximately
60%
equity investment and
40%
bond investment.
U.K. Plan Assets
: Approximately
65%
of the Company’s U.K. plan assets are invested in the U.K., of which 36% are invested in marketable equity securities and 64% are invested in fixed income securities managed by the fund manager. The trustees of the U.K. pension plan have adopted a strategic allocation comprising of
60%
equity investment and
40%
bond investment. The allocation of equity investments between U.K. domestic and U.K. foreign equities is
40%
and
60%
, respectively and the fixed income bond investment is allocated equally between government and corporate bonds in the U.K. Investment risk is substantially reduced by diversification of investments and accordingly, assets were invested
59%
in the fund manager’s Global Equity Index Fund,
20%
in the Over 15 Year Gilts Index Fund and
21%
in the AAA-AA-A Bonds Over 15 Year Index Fund. The majority of the plan liabilities are linked to price and salary inflation. The policy is therefore to invest the majority of the assets in investments which are expected to exceed price inflation and general salary growth over long periods.
Canadian Plan Assets
: Approximately
62%
of the Company’s Canadian plan assets are invested in Canada, of which
55%
are invested in marketable equity securities and
45%
are invested in fixed income securities managed by the fund manager. The Company’s pension committee has adopted a strategic allocation comprising of approximately
65%
equity investment and
35%
bond investment. The target allocation of equity investments between Canadian domestic and Canadian foreign equities is approximately
50%
each. As of December 31, 2011, assets were invested
86%
in the fund manager’s Balanced Pension Trust Series O and
14%
in the U.S. Pooled Pension Fund Series O. Investments are made with due consideration for the overall funds’ risk and expected return.
Contributions
The Company expects to make contributions and direct benefit payments of approximately
$8,663
(unaudited) under its defined benefit plans in 2013.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
Other Postretirement
Benefit Plans
|
2013
|
|
$
|
6,934
|
|
|
$
|
61
|
|
2014
|
|
6,754
|
|
|
59
|
|
2015
|
|
6,845
|
|
|
56
|
|
2016
|
|
6,955
|
|
|
53
|
|
2017
|
|
7,421
|
|
|
50
|
|
Years 2018 and thereafter
|
|
40,921
|
|
|
204
|
|
The Company sponsors various unfunded defined contribution plans that provide for retirement benefits to employees, some in accordance with local government requirements. The Company also maintains a funded retirement savings plan for U.S. employees which is qualified under Section 401(k) of the U.S. Internal Revenue Code. The plan allows eligible employees to contribute up to
99%
of their compensation (subject to certain Internal Revenue Service limitations), with the Company matching
200%
of the first
1%
of employee compensation and
100%
of the next
4%
of employee compensation. The following represents the approximate matching contribution expense for the years ended
December 31, 2012
. 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Matching contribution expense
|
|
$
|
1,684
|
|
|
$
|
1,721
|
|
|
$
|
1,656
|
|
9. Commitments and Contingencies
Leases
The Company leases office buildings, vehicles, and computer equipment for its worldwide operations. Minimum rent is expensed on a straight-line basis over the term of the leases. Operating lease rental expense was
$5,443
,
$5,622
and
$5,122
during the years ended December 31, 2012, 2011 and 2010, respectively.
These leases expire at various dates through 2023. At December 31, 2012, future minimum rental payments due under non-cancelable leases were as follows:
|
|
|
|
|
|
|
2013
|
$
|
5,084
|
|
2014
|
4,052
|
|
2015
|
3,331
|
|
2016
|
2,821
|
|
2017
|
2,351
|
|
Thereafter
|
3,633
|
|
|
|
Total minimum operating lease payments
|
$
|
21,272
|
|
|
|
Collective Bargaining and Union Agreements
Approximately
69%
of the Company’s employees either are subject to various collective bargaining agreements or are members of trade unions, employee associations or workers councils predominantly outside of the United States. Approximately
3%
of those employees subject to collaborative bargaining agreements, or
1%
of the Company’s total employees, are covered by agreements that are set to expire during 2013.
Legal Proceedings
The Company and its subsidiaries are involved in various legal matters, which have arisen in the ordinary course of business as a result of various labor claims, taxing authority reviews and other legal matters. As of December 31, 2012, the
Company had accrued an immaterial amount in its financial statements for these matters for which (1) management believed the possibility of loss was either probable or possible, and (2) was able to estimate the damages. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of our strategies related to these proceedings. See Note 7 "Income Taxes" for a discussion of the governmental proceeding of Xerium Brazil before the FRD.
Environmental Matters
The Company’s operations and facilities are subject to a number of national, state and local laws and regulations protecting the environment and human health in the United States and foreign countries that govern, among other things, the handling, storage and disposal of hazardous materials, discharges of pollutants into the air and water and workplace safety. Because of the Company’s operations, the history of industrial uses at some of these facilities, the operations of predecessor owners or operators of some of the businesses, and the use and release of hazardous substances at these sites, the liability provisions of environmental laws may affect the Company. The Company is not aware of any material unasserted claims.
The Company believes that any additional liability in excess of amounts provided which may result from the resolution of such matters will not have a material adverse effect on the financial condition, liquidity or cash flow of the Company.
10. Stock-Based Compensation and Stockholders’ Deficit
The Company records stock-based compensation expense in accordance with ASC Topic 718,
Accounting for Stock Compensation
and has used the straight-line attribution method to recognize expense for time-based restricted stock units ("RSU's") and deferred stock units ("DSUs"). The Company recorded stock-based compensation expense during the years ended
December 31, 2012
, 2011 and 2010 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2012
|
2011
|
2010
|
RSU and DSU Awards (1)
|
|
|
$
|
1,856
|
|
$
|
1,091
|
|
$
|
4,018
|
|
Management Incentive/Performance Award Programs (2)
|
|
|
—
|
|
348
|
|
2,467
|
|
Other Awards (3)
|
|
|
93
|
|
—
|
|
825
|
|
Total
|
|
|
$
|
1,949
|
|
$
|
1,439
|
|
$
|
7,310
|
|
|
|
(1)
|
Related to RSUs and DSUs awarded to certain employees and non-employee directors.
|
|
|
(2)
|
For 2011, the amount represents the value of stock awards granted under the 2011 Management Incentive Compensation Program, which was approved by the Company’s Board of Directors in March of 2011. No amount has been recorded for the 2012 Management Incentive Compensation Program (the “2012 MIC”), as the performance targets were not met at
December 31, 2012
.
|
|
|
(3)
|
The 2012 amount relates to options awarded on August 15, 2012 to the CEO. The 2010 amount relates to
39,764
shares of common stock that were sold to the previous CEO on January 5, 2010.
|
The related tax impact on stock-based compensation was a tax benefit of
$36
,
$84
and
$232
for the years ended December 31, 2012, 2011 and 2010.
2010 Equity Incentive Plan
Pursuant to the Plan as discussed in Note 1 "Company Description", the Company adopted the 2010 Equity Incentive Plan (the “2010 Plan”) on the Effective Date. The 2010 Plan provides for the grant of awards consisting of any or a combination of stock options, stock appreciation rights, restricted stock, unrestricted stock or stock unit awards.
Shares Reserved for Awards
The maximum number of shares that may be delivered under or in satisfaction of awards under the 2010 Plan is
913,525
shares of New Common Stock, provided, however, that to the extent that equity incentive awards granted prior to the Effective Date pursuant to the Company’s 2005 Equity Incentive Plan, as amended (the “2005 Plan”), or employment agreements with the Company’s senior management did not or do not vest on or after the Effective Date in accordance with their terms, the number of shares of New Common Stock reserved pursuant to the Plan with respect to such unvested awards shall be added to the number of shares of New Common Stock that may be delivered under the 2010 Plan. The number of shares deliverable
under the 2010 Plan is subject to adjustment in the case of stock dividends and other transactions affecting the New Common Stock.
Summary of Activity Under the 2010 Plan:
Long-Term Incentive Program—2012 LTIP
On May 8, 2012, the Board approved the 2012 Executive Long-Term Incentive Plan (the “2012 Executive LTIP”) under the 2010 Plan. Awards under the 2012 Executive LTIP are both time-based and performance-based. A specific target share award is set for each participant in the 2012 Executive LTIP. Awards will be paid in the form of RSUs or shares of common stock of the Company. Time-based awards, or
50%
of the total target award, were granted in the form of
54,750
time-based RSUs under the Company’s 2012 Plan and will vest in equal installments on March 31, 2013, March 31, 2014, and March 31, 2015. These will be converted into shares of common stock as they vest. Performance-based awards, which constitute
50%
of the total award, will be determined based on the Company’s performance against a
three
-year cumulative Adjusted EBITDA metric, adjusted for currency fluctuations during the term of the 2012 – 2014 Executive LTIP. The performance-based awards will convert into shares of the Company’s common stock and be paid after the close of the
three
-year performance period. The amount of the payment will be based on a sliding scale ranging from
50%
if the metric is achieved at
85%
of the target up to
200%
if the metric is achieved at or above
115%
of the target. At December 31, 2012, management determined, based on the metrics above, the performance based awards are estimated to pay out at
69.7%
of total target.
Long-Term Incentive Program-2011 LTIP
On March 15, 2011, the Board approved the Company's 2011-2013 Long-Term Incentive Plan (the “2011 LTIP”) under the 2010 Plan. Awards under the 2011 LTIP are both time-based and performance-based. Awards will be paid in the form of restricted stock units or shares of common stock of the Company, as described below. Time-based awards under the 2011 LTIP were approved in the form of
9,252
time-based restricted stock units granted on March 15, 2011 under the Company's 2010 Plan. These time-based restricted stock units will vest in equal installments on March 31, 2012, 2013 and 2014, and will be converted into shares of common stock as they vest. Accordingly,
2,871
time-based restricted stock units vested on March 31, 2012, and were converted into common stock, net of applicable tax withholdings. Performance-based awards under the 2011 LTIP were approved in the form of
17,183
performance-based restricted stock units and will vest (a) if the participant remains continuously employed with the Company through December 31, 2013 and (b) on a sliding scale ranging from
0%
to
110%
if the Company's results fall between
80.1%
and
110%
of the specified
three
-year cumulative Adjusted EBITDA target as adjusted to reflect currency exchange rate fluctuations relative to the U.S. Dollar. Vested stock units will convert into shares of the Company's common stock after the close of the
three
-year performance period ended December 31, 2013. At December 31, 2012, management determined, based on the metrics above, the performance based awards are not estimated to payout at even a minimum target level.
Long-Term Incentive Program—2010 LTIP
On September 22, 2010, the Board approved the Company’s 2010-2012 Long-Term Incentive Plan (the “2010 LTIP”) under the 2010 Plan. Awards under the 2010 LTIP are both time-based and performance-based. Awards are paid in the form of restricted stock units or shares of common stock of the Company, as described below. Time-based awards under the 2010 LTIP were approved in the form of
122,260
time-based restricted stock units granted on October 29, 2010 under the Company’s 2010 Plan. On March 31, 2011 and 2012,
86,511
time-based restricted stock units vested in accordance with the 2010 LTIP and were converted to common stock, with the remaining
35,749
time-based restricted stock units to vest on March 31, 2013. These will be converted into shares of common stock upon vesting. Performance-based awards under the 2010 LTIP will vest (a) if the participant remained continuously employed with the Company through December 31, 2012 and (b) on a sliding scale ranging from
0%
to
110%
if the Company’s results fall between
80.1%
and
110%
of the specified three-year cumulative Adjusted EBITDA target as adjusted to reflect currency exchange rate fluctuations relative to the U.S. Dollar. Vested stock units will convert into shares of the Company’s common stock after the close of the
three
-year performance period ended December 31, 2012. At December 31, 2012, management determined, based on the metrics above, the performance based awards are estimated to pay out at
23.8%
of total target.
2012 MIC
On March 13, 2012, the Board approved the 2012 MIC. Under the 2012 MIC, payouts will be determined by the Company’s performance against specified Adjusted EBITDA metrics for the 2012 fiscal year. The Adjusted EBITDA metrics will be adjusted for currency fluctuations. A specific target award is set for each participant in the 2012 MIC equal to a percentage of his or her current base cash compensation. Fifty percent (
50%
) of any 2012 MIC award earned will be paid in cash and fifty percent (
50%
) is expected to be paid in the form of shares of the Company’s common stock under the Company’s 2010 Equity Incentive Plan. The 2012 MIC awards will be paid out based on a sliding scale. A participant will receive an award equal to
20%
of his or her target award if Adjusted EBITDA is achieved above a minimum target level,
90%
of target award if
Adjusted EBITDA is at budget performance,
100%
of target award if the targeted metric is achieved and ranging up to
200%
if Adjusted EBITDA is achieved at a maximum target level. As indicated above, management determined that the 2012 Adjusted EBITDA is projected not to meet the minimum target level at
December 31, 2012
. Therefore, no compensation expense has been recorded for the year ended
December 31, 2012
.
2011 MIC
On March 15, 2011, the Board approved the 2011 Management Incentive Plan (“2011 MIC”). Under the 2011 MIC,
eighty percent
of the payouts were determined by the Company’s performance against a specified Adjusted EBITDA metric for the 2011 fiscal year. The Adjusted EBITDA metric was adjusted to reflect currency fluctuations relative to the U.S. Dollar. The remaining
twenty percent
of the payouts are based on specified net sales targets, and are adjusted to reflect currency fluctuations relative to the U. S. Dollar. The 2011 MIC awards were to be paid out based on a sliding scale ranging from
35%
if the metric is achieved at
95%
of target up to
200%
if the metric is achieved at
120%
of target. Fifty percent of any 2011 MIC award earned was paid in cash and fifty percent was paid in the form of common stock based on an average per-share price within a collar. At December 31, 2011, management determined that the performance against the specified Adjusted EBITDA target as adjusted to reflect currency exchange rate fluctuations relative to the U.S. Dollar was partially met, and recorded approximately
$0.7 million
compensation expense, of which
$0.4 million
is included in accrued liabilities and
$0.4 million
is included in additional paid in capital in the Consolidated Balance Sheet at December 31, 2011. In accordance with the 2011 MIC agreement, the Company issued
32,721
shares of common stock, net of withholdings, in the first quarter of 2012.
2010 MIC
On September 22, 2010 the Board approved an amendment and restatement of the Company’s Performance Award Program for 2010 (“2010 MIC”). Under the amended plan, payouts were determined by the Company’s performance against a specified Adjusted EBITDA metric for the 2010 fiscal year. Fifty percent (
50%
) of any 2010 MIC award earned was paid in cash and
50%
was paid in the form of RSUs under the Company’s 2010 Plan based on an average per-share price within a collar. The 2010 MIC awards were paid out based on a sliding scale ranging from
35%
if the metric was achieved at
95%
of target up to
200%
if the metric was achieved at
125%
of target. The Adjusted EBITDA metric was adjusted to reflect currency fluctuations relative to the U.S. Dollar. The awards were fully vested at the grant date and were payable in common stock
90
days later. At December 31, 2010, management determined that the performance against the specified Adjusted EBITDA target as adjusted to reflect currency exchange rate fluctuations relative to the U.S. Dollar was met, and recorded approximately
$5.0 million
compensation expense, of which
$2.5 million
is included in accrued liabilities and
$2.5 million
is included in additional paid in capital in the Consolidated Balance Sheet at December 31, 2010. In accordance with the 2010 MIC, the Company issued
111,118
shares of common stock, net of withholdings, in the second quarter of 2011.
Other Stock Compensation Plans
On August 15, 2012, in connection with the previously announced anticipated retirement of Stephen R. Light, the Board of Directors of the Company appointed Harold C. Bevis to the position of President and Chief Executive Officer, effective immediately, and Mr. Light notified the Company of his resignation, effective as of that date, as the Company's Chairman, President and Chief Executive Officer. The Company granted Mr. Bevis a sign-on award of
204,208
restricted stock units and options to acquire
781,701
shares of the Company's Common Stock, par value
$0.001
per share. Both the restricted stock units and the options will vest over a
three
year period, beginning on the second anniversary of the August 15, 2012 grant date. The options will have a
10
-year term and an exercise price of
$4.00
per share, the August 15, 2012 closing price of the Company's common stock on the New York Stock Exchange. In addition, on August 15, 2012, the Company accelerated the vesting of Mr. Light's remaining
50,000
restricted stock units, issuing
27,900
shares of common stock, upon vesting, net of certain tax withholdings, and issued Mr. Light
40,000
options, with an exercise price of
$16
. The Company recorded
$0.7 million
of stock compensation in 2012 as a result of the above events.
Directors’ Deferred Stock Unit Plan
On March 15, 2011, the Board approved a new compensation plan for non-management directors (the “2011 DSU Plan”). Under this plan, each director is to receive an annual retainer of
$112
, to be paid on a quarterly basis in arrears beginning with the quarter ended June 30, 2011. Half of the annual retainer is payable in deferred stock units (“DSUs”), with the remaining half payable in cash. The non-management directors were awarded an aggregate
92,612
DSUs under the 2011 DSU Plan for service during the year ended December 31, 2012. In addition, in accordance with the 2011 DSU Plan,
61,434
DSUs were settled in Common Stock during the year ended December 31, 2012.
Warrants
In connection with the Company’s reorganization in 2010, the holders of the Company’s Old Common Stock also received warrants to purchase an aggregate of
1,662,350
shares of New Common Stock (the “Warrants”), representing approximately
0.0324108
Warrants for each share of Old Common Stock. The Warrants are exercisable for a term of
four
years from the issue date at an exercise price of
$19.55
per share of New Common Stock. The exercise price was determined in accordance with a formula based on the final amount of allowed claims of the Lenders.
A summary of RSUs outstanding as of December 31, 2012 and their vesting dates is as follows.
|
|
|
|
|
|
|
Plan Description
|
|
Vesting Dates
|
|
Number of RSUs
|
Time-based RSUs granted during 2010
|
|
March 31, 2013
|
|
42,385
|
|
Performance-based RSUs granted during 2010
|
|
December 31, 2012
|
|
—
|
|
Time-based RSUs granted during 2011
|
|
Annually in equal installments March 31, 2013 and March 31, 2014
|
|
6,276
|
|
Performance-based RSUs granted during 2011
|
|
December 31, 2013
|
|
16,988
|
|
Executive time-based RSUs granted during 2012
|
|
Annually in equal installments March 31, 2013, March 31, 2014 and March 31, 2015
|
|
49,750
|
|
Executive performance-based RSUs granted during 2012
|
|
December 31, 2014
|
|
49,750
|
|
Non-executive time-based RSUs granted during 2012
|
|
Annually in equal installments March 31, 2013, March 31, 2014 and March 31, 2015
|
|
15,075
|
|
Time-based RSUs granted to CEO during 2012
|
|
In thirds on August 15, 2014, August 15, 2015 and August 15, 2016
|
|
204,208
|
|
DSUs
|
|
Vest immediately upon grant
|
|
55,593
|
|
|
|
|
|
440,025
|
|
RSU activity during years ended December 31, 2010, 2011 and 2012, are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
RSUs
|
|
Price Range of Grant-
Date
Fair Value Per RSU
|
|
Weighted
Average Grant-Date Fair
Value Price Per RSU
|
Outstanding, December 31, 2009
|
|
167,471
|
|
|
10.80 – 240.20
|
|
|
$
|
50.20
|
|
Granted
|
|
409,872
|
|
|
12.60 – 15.95
|
|
|
12.97
|
|
Forfeited
|
|
(33,158
|
)
|
|
12.60 – 163.00
|
|
|
29.40
|
|
Issued or withheld for tax withholding purposes
|
|
(119,176
|
)
|
|
10.40 – 240.20
|
|
|
50.54
|
|
Outstanding, December 31, 2010
|
|
425,009
|
|
|
10.40 – 240.20
|
|
|
15.74
|
|
Granted
|
|
106,570
|
|
|
6.89 – 24.05
|
|
|
12.06
|
|
Forfeited
|
|
(139,750
|
)
|
|
12.93
|
|
|
12.93
|
|
Issued or withheld for tax withholding purposes
|
|
(99,484
|
)
|
|
6.89 – 108.00
|
|
|
23.16
|
|
Outstanding, December 31, 2011
|
|
292,345
|
|
|
7.25 – 21.69
|
|
|
13.04
|
|
Granted
|
|
424,295
|
|
|
4.04 – 8.25
|
|
|
4.13
|
|
Forfeited
|
|
(96,725
|
)
|
|
4.07 – 12.93
|
|
|
11.87
|
|
Issued or withheld for tax withholding purposes
|
|
(179,890
|
)
|
|
3.60 – 21.69
|
|
|
8.30
|
|
Outstanding, December 31, 2012
|
|
440,025
|
|
|
4.04 – 21.69
|
|
|
$
|
6.57
|
|
Exercisable, December 31, 2012 (1)
|
|
55,593
|
|
|
2.90 – 24.05
|
|
|
$
|
8.68
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Exercisable at December 31, 2012 consists of non-employee director DSUs that have vested, but have not yet been converted to common stock. The total grant-date fair value of such non-employee director DSUs is
$483
.
|
Assumptions
In accordance with Topic 718, the Company uses the following assumptions in determining compensation expense:
Grant-Date Fair Value
The Company calculates the grant-date fair value of time-based RSUs, performance-based RSUs and non-employee directors’ RSUs based on the closing price of the Company’s common stock on the date of grant.
For the options granted on August 15, 2012, performance-based RSU's granted on January 1, 2010, which were amended on September 22, 2010, and the time-based RSU’s granted on September 22, 2010, as previously discussed, and warrants granted on the Effective Date as previously discussed, the Company calculated the grant-date fair value by using a Black Scholes-Merton pricing model and the following assumptions:
|
|
|
|
|
|
Options
|
RSUs
|
Warrants
|
Expected term (i)
|
6.5 years
|
3 years
|
4 years
|
Expected volatility (ii)
|
55.1%
|
120.0%
|
75.0%
|
Expected dividends (iii)
|
None
|
None
|
None
|
Risk-free interest rate (iv)
|
1.16%
|
1.75%
|
1.65%
|
Option assumption definitions:
|
|
(i)
|
Expected term
. Determined based on historical option exercises.
|
|
|
(ii)
|
Expected volatility
. The Company is responsible for estimating the volatility of the price of its common stock and has considered a number of factors, including third party estimates, to determine its expected volatility. For these awards, after being a public company for more than four years, the Company determined to use its own historical volatility blended with a peer group volatility to determine the volatility rate.
|
|
|
(iii)
|
Expected dividends
. No dividends were declared by the Company after 2007 because the Company’s senior credit facility at that time precluded the payment of dividends. The Credit Facility continues to generally prohibit the payment of dividends.
|
|
|
(iv)
|
Risk-free interest rate
. The yield on a U.S. Treasury Strip for the period that is commensurate with the expected term assumptions.
|
RSU assumption definitions:
|
|
(i)
|
Expected term
. Performance-based RSUs expire three years after the grant date.
|
|
|
(ii)
|
Expected volatility
. The Company is responsible for estimating the volatility of the price of its common stock and has considered a number of factors, including third party estimates, to determine its expected volatility. For these awards, after being a public company for more than four years, the Company determined to use its own historical volatility rather than a peer group analysis. The volatility for the 2010 award was
120%
.
|
|
|
(iii)
|
Expected dividends
. No dividends were declared by the Company after 2007 because the Company’s senior credit facility at that time precluded the payment of dividends. The Credit Facility continues to generally prohibit the payment of dividends.
|
|
|
(iv)
|
Risk-free interest rate
. The yield on zero-coupon U.S. Treasury securities for the period that is commensurate with the expected term assumptions.
|
Warrant assumption definitions:
|
|
(i)
|
Expected term
. Warrants expire four years after the grant date.
|
|
|
(ii)
|
Expected volatility
. The Company is responsible for estimating the volatility of the price of its common stock and has considered a number of factors, including third party estimates, to determine its expected volatility. For these awards, after being a public company for five years, the Company determined to use a blend of its own five-year historical volatility and that of its peer group, which resulted in volatility of
75%
.
|
|
|
(iii)
|
Expected dividends
. No dividends were declared by the Company after 2007 because the Company’s senior credit facility at that time precluded the payment of dividends. The Credit Facility continues to generally prohibit the payment of dividends.
|
|
|
(iv)
|
Risk-free interest rate
. The yield on zero-coupon U.S. Treasury securities for the period that is commensurate with the expected term assumptions.
|
Forfeitures
As the time-based and performance-based RSUs require continued employment or service up to the time of vesting, the amount of stock-based compensation recognized during a period is required to include an estimate of forfeitures. No estimate of forfeitures has been made for RSUs and DSU’s awarded to non-employee directors because they vest immediately upon grant. Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is related to employee attrition and based on a historical analysis of its employee turnover. This analysis is re-evaluated quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will be only for those shares that meet the requirements of continued employment up to the time of vesting. As of December 31, 2012, the forfeiture rates for the 2010, the 2011 LTIP and the 2012 Executive LTIP plans are estimated at
10%
. In accordance with Topic 718, the cumulative effect of applying the change in estimate retrospectively is recognized in the period of change. During 2012, the Company did not change its forfeiture rate estimates, therefore no cumulative adjustment was made.
As of December 31, 2012, there was approximately
$2.9 million
of total unrecognized compensation expense related to unvested share-based awards which is expected to be recognized over a weighted average period of
3.17 years
.
The Company’s Credit Facility generally prohibits the payment of dividends and accordingly, no such payments were made during the years ended December 31, 2012 and 2011.
11. Restructuring Expense
Restructuring expense included in the Company’s statements of operations are the result of its long-term strategy to reduce production costs and improve long-term competitiveness. Restructuring and impairments expense consists principally of severance costs related to reductions in work force and of facility costs and impairments of assets principally related to closing facilities and/or the relocation of production to another facility. Impairment amounts for assets held for sale reflect estimated selling prices less costs to sell and are considered to be a Level 2 within the fair value hierarchy. Facility costs are principally comprised of costs to relocate assets to the Company’s other facilities, operating lease termination costs and other associated costs.
During 2012, the Company incurred
$25,708
in restructuring expenses, of which
$21,251
,
$4,295
and
$162
were in the clothing, rolls and corporate segments, respectively. This amount includes costs incurred as a result of (1) the reduction of selling costs in Europe via termination of sales agency agreements, resulting in
$3,601
of restructuring costs; (2) the closure of clothing production operation in Argentina, resulting in
$2,176
of restructuring costs; (3) the closure of roll covering plant in France, resulting in
$3,717
restructuring costs; (4) the reduction of base costs via headcount reductions primarily in Europe, resulting in
$7,952
of restructuring costs, and (6) the planned closure of clothing plant in Spain, resulting in restructuring costs of
$8,262
. Included in these costs were non-cash impairment charges of
$2,479
recorded in 2012 as a result of closing the Argentina, France and Spain facilities.
During 2011, the Company incurred
$1,589
for restructuring expense, of which
$368
and
$1,221
were in the clothing and rolls segments, respectively. This amount includes costs resulting from its long-term strategy to reduce production costs and improve long-term competitiveness as described above under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Cost Reduction Programs” by closing and/or transferring production from certain of our manufacturing facilities and through headcount reductions.
During 2010, the Company incurred
$10,004
for restructuring expense in the clothing, rolls and corporate segments of
$4,351
,
$4,109
and
$1,543
, respectively. This amount included approximately
$2,400
related to the closing of the Company’s Vietnam clothing facility including
$2,100
as an impairment, approximately
$1,800
related to the Company’s closure of its Stowe Woodward roll covers facility in North Bay, Ontario including approximately
$700
as an impairment, approximately
$1,500
related to the closure of the Company’s Massachusetts corporate operations, the closure of a rolls plant in Germany and approximately
$4,700
related to our continuation of the streamlining of the Company’s operations.
The Company expects to continue to review its business to determine if additional actions can be taken to further improve its cost structure. Restructuring expenses of approximately
$10,000
are estimated during 2013, primarily related to the continuation of streamlining the operating structure and improving long-term competitiveness of the Company. Actual restructuring costs for 2013 may substantially differ from estimates at this time, depending on actual operating results in 2012 and the timing of the restructuring activities.
The table below sets forth the significant components and activity in the restructuring program during the years ended December 31, 2012, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
Balance at
December 31,
2011
|
|
Charges (1)
|
|
Currency
Effects
|
|
Cash
Payments
|
|
Balance at
December 31,
2012
|
Severance
|
$
|
800
|
|
|
$
|
18,050
|
|
|
$
|
172
|
|
|
$
|
(3,445
|
)
|
|
$
|
15,577
|
|
Facility costs and other
|
452
|
|
|
5,179
|
|
|
(110
|
)
|
|
(5,186
|
)
|
|
335
|
|
Total
|
$
|
1,252
|
|
|
$
|
23,229
|
|
|
$
|
62
|
|
|
$
|
(8,631
|
)
|
|
$
|
15,912
|
|
(1) Amount excludes
$2,479
related to impairment charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
Balance at
December 31,
2010
|
|
Charges (1)
|
|
Currency
Effects
|
|
Cash
Payments
|
|
Balance at
December 31,
2011
|
Severance
|
$
|
2,255
|
|
|
$
|
482
|
|
|
$
|
(74
|
)
|
|
$
|
(1,863
|
)
|
|
$
|
800
|
|
Facility costs and other
|
471
|
|
|
705
|
|
|
50
|
|
|
(774
|
)
|
|
452
|
|
Total
|
$
|
2,726
|
|
|
$
|
1,187
|
|
|
$
|
(24
|
)
|
|
$
|
(2,637
|
)
|
|
$
|
1,252
|
|
(1) Amount excludes
$402
related to a Canadian pension plan termination charge reclassified out of Accumulated Other Comprehensive Income, rather than recorded in the accrual above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
Balance at
December 31,
2009
|
|
Charges (1)
|
|
Currency
Effects
|
|
Cash
Payments
|
|
Balance at
December 31,
2010
|
Severance
|
$
|
536
|
|
|
$
|
4,663
|
|
|
$
|
(49
|
)
|
|
$
|
(2,895
|
)
|
|
$
|
2,255
|
|
Facility costs and other
|
1,478
|
|
|
2,451
|
|
|
(57
|
)
|
|
(3,401
|
)
|
|
471
|
|
Total
|
$
|
2,014
|
|
|
$
|
7,114
|
|
|
$
|
(106
|
)
|
|
$
|
(6,296
|
)
|
|
$
|
2,726
|
|
(1) Amount excludes
$2,890
related to impairment charges.
12. Business Segment Information
The Company is a global manufacturer and supplier of consumable products primarily used in the production of paper, and is organized into
two
reportable segments: clothing and roll covers. The clothing segment represents the manufacture and sale of synthetic textile belts used to transport paper along the length of papermaking machines. The roll covers segment primarily represents the manufacture and refurbishment of covers used on the steel rolls of a papermaking machine. The Company manages each of these operating segments separately.
Management evaluates segment performance based on earnings before interest, taxes, depreciation and amortization before allocation of corporate charges. Such measure is then adjusted to exclude items that are of an unusual nature and are not used in measuring segment performance or are not segment specific (“Segment Earnings (Loss)”). The accounting policies of
these segments are the same as those described in Accounting Policies in Note 2. Inter-segment net sales and inter-segment eliminations are not material for any of the periods presented.
The corporate column consists of the Company’s headquarters, related assets and expenses that are not allocable to reportable segments. Significant corporate assets include cash, investments in subsidiaries and deferred financing costs. Corporate depreciation and amortization consists primarily of deferred financing costs. Corporate segment earnings (loss) consists of general and administrative expenses. The eliminations column represents eliminations of investments in subsidiaries.
Summarized financial information for the Company’s reportable segments is presented in the tables that follow for each of the three years ended December 31, 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clothing
|
|
Roll
Covers
|
|
Corporate
|
|
Eliminations
|
|
Total
|
2012
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
354,172
|
|
|
$
|
184,568
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
538,740
|
|
Depreciation and amortization (1)
|
29,818
|
|
|
10,852
|
|
|
168
|
|
|
—
|
|
|
40,838
|
|
Segment Earnings (Loss)
|
62,884
|
|
|
38,212
|
|
|
(11,868
|
)
|
|
—
|
|
|
|
Total assets
|
490,283
|
|
|
224,288
|
|
|
698,944
|
|
|
(794,672
|
)
|
|
618,843
|
|
Capital expenditures
|
14,026
|
|
|
7,314
|
|
|
365
|
|
|
—
|
|
|
21,705
|
|
2011
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
386,433
|
|
|
$
|
200,527
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
586,960
|
|
Depreciation and amortization (1)
|
32,575
|
|
|
10,877
|
|
|
234
|
|
|
—
|
|
|
43,686
|
|
Segment Earnings (Loss)
|
79,458
|
|
|
40,327
|
|
|
(12,126
|
)
|
|
—
|
|
|
|
Total assets
|
499,338
|
|
|
228,014
|
|
|
730,269
|
|
|
(791,900
|
)
|
|
665,721
|
|
Capital expenditures
|
21,530
|
|
|
8,172
|
|
|
452
|
|
|
|
|
30,154
|
|
2010
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
359,686
|
|
|
$
|
188,648
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
548,334
|
|
Depreciation and amortization (1)
|
30,188
|
|
|
10,771
|
|
|
322
|
|
|
—
|
|
|
41,281
|
|
Segment Earnings (Loss)
|
83,235
|
|
|
42,881
|
|
|
(10,666
|
)
|
|
—
|
|
|
|
Total assets
|
514,380
|
|
|
233,410
|
|
|
706,503
|
|
|
(764,351
|
)
|
|
689,942
|
|
Capital expenditures
|
21,919
|
|
|
5,756
|
|
|
253
|
|
|
—
|
|
|
27,928
|
|
|
|
(1)
|
Depreciation and amortization excludes amortization of financing costs, included in interest expense of
$3,424
,
$2,307
, and
$5,953
for 2012, 2011 and 2010, respectively.
|
Provided below is a reconciliation of Segment Earnings (Loss) to income before provision for income taxes for each of the three years in the period ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Segment Earnings (Loss):
|
|
|
|
|
|
Clothing
|
$
|
62,884
|
|
|
$
|
79,458
|
|
|
$
|
83,235
|
|
Roll Covers
|
38,212
|
|
|
40,327
|
|
|
42,881
|
|
Corporate
|
(11,868
|
)
|
|
(12,126
|
)
|
|
(10,666
|
)
|
Stock-based compensation
|
(1,949
|
)
|
|
(1,439
|
)
|
|
(7,310
|
)
|
Legal fees related to debt refinancing
|
(115
|
)
|
|
—
|
|
|
—
|
|
Idle facility asset impairment
|
(1,195
|
)
|
|
—
|
|
|
—
|
|
Non-recurring expenses related to CEO retirement
|
(3,385
|
)
|
|
—
|
|
|
—
|
|
Interest expense, net
|
(37,878
|
)
|
|
(39,150
|
)
|
|
(56,795
|
)
|
Depreciation and amortization (1)
|
(40,838
|
)
|
|
(43,686
|
)
|
|
(41,281
|
)
|
Restructuring expenses
|
(25,708
|
)
|
|
(1,589
|
)
|
|
(10,004
|
)
|
Financial restructuring costs included in general and administrative expense
|
—
|
|
|
—
|
|
|
(9,923
|
)
|
Gain (loss) on debt extinguishment
|
243
|
|
|
(2,926
|
)
|
|
—
|
|
(Loss) income before reorganization items and provision for income taxes
|
$
|
(21,597
|
)
|
|
$
|
18,869
|
|
|
$
|
(9,863
|
)
|
(1) Excludes amortization of deferred finance costs that are charged to interest expense.
Information concerning principal geographic areas is set forth below. Net sales amounts are by geographic area of product destination. Net sales amounts are for the years ended December 31, 2012, 2011 and 2010 and property, plant and equipment amounts are as of December 31, 2012, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
Europe
|
|
Asia-
Pacific
|
|
Other
|
|
Total
|
2012
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
205,588
|
|
|
$
|
166,664
|
|
|
$
|
105,568
|
|
|
$
|
60,920
|
|
|
$
|
538,740
|
|
Property, plant and equipment
|
97,270
|
|
|
125,980
|
|
|
29,977
|
|
|
55,579
|
|
|
308,806
|
|
2011
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
210,644
|
|
|
$
|
197,006
|
|
|
$
|
112,809
|
|
|
$
|
66,501
|
|
|
$
|
586,960
|
|
Property, plant and equipment
|
102,754
|
|
|
136,579
|
|
|
32,827
|
|
|
63,096
|
|
|
335,256
|
|
2010
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
197,805
|
|
|
$
|
188,723
|
|
|
$
|
95,056
|
|
|
$
|
66,750
|
|
|
$
|
548,334
|
|
Property, plant and equipment
|
108,322
|
|
|
148,051
|
|
|
38,961
|
|
|
65,936
|
|
|
361,270
|
|
13. Supplemental Guarantor Financial Information
On May 26, 2011, the Company closed on the sale of its Notes. The Notes are unsecured obligations of the Company and are fully and unconditionally guaranteed on a senior unsecured basis by all of the domestic wholly owned subsidiaries of the Company (the “Guarantors”). In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act of 1933, the following consolidating financial statements present the financial position, results of operations and cash flows of Xerium Technologies, Inc. (referred to as “Parent” for the purpose of this note only) on a stand-alone parent-only basis, the Guarantors on a Guarantors-only basis, the combined non-Guarantor subsidiaries and elimination entries necessary to arrive at the information for the Parent, the Guarantors and non-Guarantor subsidiaries on a consolidated basis.
Xerium Technologies, Inc.
Consolidating Balance Sheet
At
December 31, 2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
6,471
|
|
|
$
|
36
|
|
|
$
|
28,270
|
|
|
$
|
—
|
|
|
$
|
34,777
|
|
Accounts receivable, net
|
—
|
|
|
20,964
|
|
|
63,492
|
|
|
—
|
|
|
84,456
|
|
Intercompany (payable) receivable
|
(102,407
|
)
|
|
107,944
|
|
|
(5,537
|
)
|
|
—
|
|
|
—
|
|
Inventories
|
—
|
|
|
15,672
|
|
|
62,569
|
|
|
(850
|
)
|
|
77,391
|
|
Prepaid expenses
|
159
|
|
|
1,693
|
|
|
7,534
|
|
|
—
|
|
|
9,386
|
|
Other current assets
|
—
|
|
|
2,970
|
|
|
11,869
|
|
|
—
|
|
|
14,839
|
|
Total current assets
|
(95,777
|
)
|
|
149,279
|
|
|
168,197
|
|
|
(850
|
)
|
|
220,849
|
|
Property and equipment, net
|
734
|
|
|
62,157
|
|
|
245,915
|
|
|
—
|
|
|
308,806
|
|
Investments
|
596,891
|
|
|
149,134
|
|
|
—
|
|
|
(746,025
|
)
|
|
—
|
|
Goodwill
|
—
|
|
|
17,737
|
|
|
43,390
|
|
|
—
|
|
|
61,127
|
|
Intangible assets
|
10,034
|
|
|
4,776
|
|
|
3,868
|
|
|
—
|
|
|
18,678
|
|
Other assets
|
44
|
|
|
—
|
|
|
9,339
|
|
|
—
|
|
|
9,383
|
|
Total assets
|
$
|
511,926
|
|
|
$
|
383,083
|
|
|
$
|
470,709
|
|
|
$
|
(746,875
|
)
|
|
$
|
618,843
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Notes payable
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,911
|
|
|
$
|
—
|
|
|
$
|
7,911
|
|
Accounts payable
|
502
|
|
|
8,629
|
|
|
27,753
|
|
|
—
|
|
|
36,884
|
|
Accrued expenses
|
6,005
|
|
|
6,579
|
|
|
47,173
|
|
|
—
|
|
|
59,757
|
|
Current maturities of long-term debt
|
1,250
|
|
|
—
|
|
|
1,147
|
|
|
—
|
|
|
2,397
|
|
Total current liabilities
|
7,757
|
|
|
15,208
|
|
|
83,984
|
|
|
—
|
|
|
106,949
|
|
Long-term debt, net of current maturities
|
339,717
|
|
|
—
|
|
|
94,967
|
|
|
—
|
|
|
434,684
|
|
Deferred and long-term taxes
|
—
|
|
|
2,335
|
|
|
14,247
|
|
|
—
|
|
|
16,582
|
|
Pension, other post-retirement and post-employment obligations
|
21,677
|
|
|
1,000
|
|
|
61,272
|
|
|
—
|
|
|
83,949
|
|
Other long-term liabilities
|
31
|
|
|
—
|
|
|
5,709
|
|
|
—
|
|
|
5,740
|
|
Intercompany loans
|
229,239
|
|
|
(358,187
|
)
|
|
128,948
|
|
|
—
|
|
|
—
|
|
Total stockholders’ (deficit) equity
|
(86,495
|
)
|
|
722,727
|
|
|
81,582
|
|
|
(746,875
|
)
|
|
(29,061
|
)
|
Total liabilities and stockholders’ (deficit) equity
|
$
|
511,926
|
|
|
$
|
383,083
|
|
|
$
|
470,709
|
|
|
$
|
(746,875
|
)
|
|
$
|
618,843
|
|
Xerium Technologies, Inc.
Consolidating Balance Sheet
At December 31, 2011
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
11,548
|
|
|
$
|
280
|
|
|
$
|
31,738
|
|
|
$
|
—
|
|
|
$
|
43,566
|
|
Accounts receivable, net
|
—
|
|
|
21,210
|
|
|
70,574
|
|
|
—
|
|
|
91,784
|
|
Intercompany (payable) receivable
|
(95,855
|
)
|
|
102,653
|
|
|
(6,798
|
)
|
|
—
|
|
|
—
|
|
Inventories
|
—
|
|
|
19,759
|
|
|
64,857
|
|
|
(1,299
|
)
|
|
83,317
|
|
Prepaid expenses
|
272
|
|
|
1,546
|
|
|
4,359
|
|
|
—
|
|
|
6,177
|
|
Other current assets
|
—
|
|
|
4,716
|
|
|
10,335
|
|
|
—
|
|
|
15,051
|
|
Total current assets
|
(84,035
|
)
|
|
150,164
|
|
|
175,065
|
|
|
(1,299
|
)
|
|
239,895
|
|
Property and equipment, net
|
881
|
|
|
67,727
|
|
|
266,648
|
|
|
—
|
|
|
335,256
|
|
Investments
|
579,018
|
|
|
162,438
|
|
|
—
|
|
|
(741,456
|
)
|
|
—
|
|
Goodwill
|
—
|
|
|
17,737
|
|
|
41,383
|
|
|
—
|
|
|
59,120
|
|
Intangible assets
|
11,484
|
|
|
6,986
|
|
|
4,170
|
|
|
—
|
|
|
22,640
|
|
Other assets
|
196
|
|
|
—
|
|
|
8,614
|
|
|
—
|
|
|
8,810
|
|
Total assets
|
$
|
507,544
|
|
|
$
|
405,052
|
|
|
$
|
495,880
|
|
|
$
|
(742,755
|
)
|
|
$
|
665,721
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
679
|
|
|
$
|
10,257
|
|
|
$
|
28,807
|
|
|
$
|
—
|
|
|
$
|
39,743
|
|
Accrued expenses
|
6,563
|
|
|
5,722
|
|
|
35,520
|
|
|
—
|
|
|
47,805
|
|
Current maturities of long-term debt
|
1,250
|
|
|
—
|
|
|
2,298
|
|
|
—
|
|
|
3,548
|
|
Total current liabilities
|
8,492
|
|
|
15,979
|
|
|
66,625
|
|
|
—
|
|
|
91,096
|
|
Long-term debt, net of current maturities
|
358,116
|
|
|
—
|
|
|
107,390
|
|
|
—
|
|
|
465,506
|
|
Deferred and long-term taxes
|
—
|
|
|
2,378
|
|
|
16,204
|
|
|
—
|
|
|
18,582
|
|
Pension, other post-retirement and post-employment obligations
|
22,906
|
|
|
1,820
|
|
|
56,462
|
|
|
—
|
|
|
81,188
|
|
Other long-term liabilities
|
—
|
|
|
—
|
|
|
11,654
|
|
|
—
|
|
|
11,654
|
|
Intercompany loans
|
187,661
|
|
|
(307,813
|
)
|
|
120,152
|
|
|
—
|
|
|
—
|
|
Total stockholders’ (deficit) equity
|
(69,631
|
)
|
|
692,688
|
|
|
117,393
|
|
|
(742,755
|
)
|
|
(2,305
|
)
|
Total liabilities and stockholders’ (deficit) equity
|
$
|
507,544
|
|
|
$
|
405,052
|
|
|
$
|
495,880
|
|
|
$
|
(742,755
|
)
|
|
$
|
665,721
|
|
Xerium Technologies, Inc.
Consolidating Statement of Operations and Comprehensive (Loss) Income
For the year ended
December 31, 2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
Net sales
|
$
|
—
|
|
|
$
|
178,613
|
|
|
$
|
407,647
|
|
|
$
|
(47,520
|
)
|
|
$
|
538,740
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
(1,451
|
)
|
|
129,127
|
|
|
265,513
|
|
|
(48,018
|
)
|
|
345,171
|
|
Selling
|
—
|
|
|
22,205
|
|
|
53,878
|
|
|
—
|
|
|
76,083
|
|
General and administrative
|
10,241
|
|
|
6,525
|
|
|
46,935
|
|
|
—
|
|
|
63,701
|
|
Research and development
|
—
|
|
|
8,485
|
|
|
3,196
|
|
|
—
|
|
|
11,681
|
|
Restructuring
|
163
|
|
|
510
|
|
|
25,035
|
|
|
—
|
|
|
25,708
|
|
|
8,953
|
|
|
166,852
|
|
|
394,557
|
|
|
(48,018
|
)
|
|
522,344
|
|
(Loss) income from operations
|
(8,953
|
)
|
|
11,761
|
|
|
13,090
|
|
|
498
|
|
|
16,396
|
|
Interest (expense) income, net
|
(28,115
|
)
|
|
6,503
|
|
|
(16,266
|
)
|
|
—
|
|
|
(37,878
|
)
|
Foreign exchange (loss) gain
|
(612
|
)
|
|
(46
|
)
|
|
300
|
|
|
—
|
|
|
(358
|
)
|
Equity in subsidiaries income
|
17,875
|
|
|
(20,177
|
)
|
|
—
|
|
|
2,302
|
|
|
—
|
|
Gain on extinguishment of debt
|
243
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
243
|
|
Dividend income
|
1,657
|
|
|
22,928
|
|
|
—
|
|
|
(24,585
|
)
|
|
—
|
|
(Loss) income before provision for income taxes
|
(17,905
|
)
|
|
20,969
|
|
|
(2,876
|
)
|
|
(21,785
|
)
|
|
(21,597
|
)
|
(Provision) benefit for income taxes
|
(130
|
)
|
|
(131
|
)
|
|
3,823
|
|
|
—
|
|
|
3,562
|
|
Net (loss) income
|
$
|
(18,035
|
)
|
|
$
|
20,838
|
|
|
$
|
947
|
|
|
$
|
(21,785
|
)
|
|
$
|
(18,035
|
)
|
Comprehensive (loss) income
|
$
|
(18,488
|
)
|
|
$
|
21,644
|
|
|
$
|
(9,753
|
)
|
|
$
|
(21,785
|
)
|
|
$
|
(28,382
|
)
|
Xerium Technologies, Inc.
Consolidating Statement of Operations and Comprehensive (Loss) Income
For the year ended
December 31, 2011
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
Net sales
|
$
|
—
|
|
|
$
|
180,973
|
|
|
$
|
455,339
|
|
|
$
|
(49,352
|
)
|
|
$
|
586,960
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
(2,384
|
)
|
|
128,567
|
|
|
293,830
|
|
|
(49,259
|
)
|
|
370,754
|
|
Selling
|
53
|
|
|
22,879
|
|
|
56,475
|
|
|
—
|
|
|
79,407
|
|
General and administrative
|
7,571
|
|
|
7,573
|
|
|
46,868
|
|
|
—
|
|
|
62,012
|
|
Research and development
|
(3
|
)
|
|
8,565
|
|
|
3,535
|
|
|
—
|
|
|
12,097
|
|
Restructuring
|
(72
|
)
|
|
907
|
|
|
754
|
|
|
—
|
|
|
1,589
|
|
|
5,165
|
|
|
168,491
|
|
|
401,462
|
|
|
(49,259
|
)
|
|
525,859
|
|
(Loss) income from operations
|
(5,165
|
)
|
|
12,482
|
|
|
53,877
|
|
|
(93
|
)
|
|
61,101
|
|
Interest (expense) income, net
|
(24,594
|
)
|
|
7,618
|
|
|
(22,174
|
)
|
|
—
|
|
|
(39,150
|
)
|
Loss on extinguishment of debt
|
(2,903
|
)
|
|
(6
|
)
|
|
(17
|
)
|
|
|
|
(2,926
|
)
|
Foreign exchange (loss) gain
|
582
|
|
|
(956
|
)
|
|
218
|
|
|
—
|
|
|
(156
|
)
|
Equity in subsidiaries income
|
39,640
|
|
|
18,851
|
|
|
—
|
|
|
(58,491
|
)
|
|
—
|
|
Dividend income
|
1,366
|
|
|
|
|
|
|
(1,366
|
)
|
|
—
|
|
Income (loss) before provision for income taxes
|
8,926
|
|
|
37,989
|
|
|
31,904
|
|
|
(59,950
|
)
|
|
18,869
|
|
Provision for income taxes
|
(736
|
)
|
|
(203
|
)
|
|
(9,740
|
)
|
|
—
|
|
|
(10,679
|
)
|
Net income (loss)
|
$
|
8,190
|
|
|
$
|
37,786
|
|
|
$
|
22,164
|
|
|
$
|
(59,950
|
)
|
|
$
|
8,190
|
|
Comprehensive (loss) income
|
$
|
(10,489
|
)
|
|
$
|
44,797
|
|
|
$
|
4,663
|
|
|
$
|
(59,950
|
)
|
|
$
|
(20,979
|
)
|
Xerium Technologies, Inc.
Consolidating Statement of Operations and Comprehensive (Loss) Income
For the year ended
December 31, 2010
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
Net sales
|
$
|
—
|
|
|
$
|
170,727
|
|
|
$
|
425,367
|
|
|
$
|
(47,760
|
)
|
|
$
|
548,334
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
(2,213
|
)
|
|
117,801
|
|
|
266,026
|
|
|
(47,656
|
)
|
|
333,958
|
|
Selling
|
—
|
|
|
20,611
|
|
|
52,272
|
|
|
—
|
|
|
72,883
|
|
General and administrative
|
11,703
|
|
|
7,004
|
|
|
56,091
|
|
|
—
|
|
|
74,798
|
|
Research and development
|
(21
|
)
|
|
8,774
|
|
|
2,674
|
|
|
—
|
|
|
11,427
|
|
Restructuring
|
1,543
|
|
|
847
|
|
|
7,614
|
|
|
—
|
|
|
10,004
|
|
|
11,012
|
|
|
155,037
|
|
|
384,677
|
|
|
(47,656
|
)
|
|
503,070
|
|
(Loss) income from operations
|
(11,012
|
)
|
|
15,690
|
|
|
40,690
|
|
|
(104
|
)
|
|
45,264
|
|
Interest (expense) income, net
|
(33,942
|
)
|
|
1,616
|
|
|
(24,469
|
)
|
|
—
|
|
|
(56,795
|
)
|
Foreign exchange (loss) gain
|
2,075
|
|
|
(1,124
|
)
|
|
717
|
|
|
—
|
|
|
1,668
|
|
Equity in subsidiaries income
|
8,177
|
|
|
(8,685
|
)
|
|
—
|
|
|
508
|
|
|
—
|
|
Dividend income
|
1,517
|
|
|
8,294
|
|
|
—
|
|
|
(9,811
|
)
|
|
—
|
|
(Loss) income before reorganization expenses and provision for income taxes
|
(33,185
|
)
|
|
15,791
|
|
|
16,938
|
|
|
(9,407
|
)
|
|
(9,863
|
)
|
Reorganization expenses
|
(39,106
|
)
|
|
(1,396
|
)
|
|
(4,455
|
)
|
|
—
|
|
|
(44,957
|
)
|
(Loss) income before provision for income taxes
|
(72,291
|
)
|
|
14,395
|
|
|
12,483
|
|
|
(9,407
|
)
|
|
(54,820
|
)
|
Provision for income taxes
|
(795
|
)
|
|
(253
|
)
|
|
(17,218
|
)
|
|
—
|
|
|
(18,266
|
)
|
Net (loss) income
|
$
|
(73,086
|
)
|
|
$
|
14,142
|
|
|
$
|
(4,735
|
)
|
|
$
|
(9,407
|
)
|
|
$
|
(73,086
|
)
|
Comprehensive (loss) income
|
$
|
(67,099
|
)
|
|
$
|
11,022
|
|
|
$
|
1,138
|
|
|
$
|
(9,407
|
)
|
|
$
|
(64,346
|
)
|
Xerium Technologies, Inc.
Consolidating Statement of Cash Flows
For the year ended
December 31, 2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
Operating activities
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(18,035
|
)
|
|
$
|
20,838
|
|
|
$
|
947
|
|
|
$
|
(21,785
|
)
|
|
$
|
(18,035
|
)
|
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
1,949
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,949
|
|
Depreciation
|
168
|
|
|
8,340
|
|
|
30,025
|
|
|
—
|
|
|
38,533
|
|
Amortization of other intangibles
|
—
|
|
|
2,212
|
|
|
93
|
|
|
—
|
|
|
2,305
|
|
Deferred financing cost amortization
|
2,407
|
|
|
—
|
|
|
1,017
|
|
|
—
|
|
|
3,424
|
|
Unrealized foreign exchange loss on revaluation of debt
|
—
|
|
|
—
|
|
|
582
|
|
|
—
|
|
|
582
|
|
Deferred taxes
|
—
|
|
|
—
|
|
|
(8,249
|
)
|
|
—
|
|
|
(8,249
|
)
|
Asset impairment
|
—
|
|
|
—
|
|
|
3,674
|
|
|
|
|
3,674
|
|
Loss (gain) on disposition of property and equipment
|
—
|
|
|
128
|
|
|
(704
|
)
|
|
—
|
|
|
(576
|
)
|
(Gain) loss on extinguishment of debt
|
(243
|
)
|
|
—
|
|
|
—
|
|
|
|
|
(243
|
)
|
Intercompany dividend
|
(1,657
|
)
|
|
(22,928
|
)
|
|
—
|
|
|
24,585
|
|
|
—
|
|
Provision (credit) for doubtful accounts
|
—
|
|
|
(109
|
)
|
|
1,063
|
|
|
—
|
|
|
954
|
|
Undistributed equity in (earnings) loss of subsidiaries
|
(17,875
|
)
|
|
20,177
|
|
|
—
|
|
|
(2,302
|
)
|
|
—
|
|
Change in assets and liabilities which provided (used) cash:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
8
|
|
|
355
|
|
|
5,232
|
|
|
—
|
|
|
5,595
|
|
Inventories
|
—
|
|
|
4,087
|
|
|
1,630
|
|
|
(498
|
)
|
|
5,219
|
|
Prepaid expenses
|
112
|
|
|
(147
|
)
|
|
(3,388
|
)
|
|
—
|
|
|
(3,423
|
)
|
Other current assets
|
—
|
|
|
1,704
|
|
|
(1,120
|
)
|
|
—
|
|
|
584
|
|
Accounts payable and accrued expenses
|
(1,064
|
)
|
|
(769
|
)
|
|
11,169
|
|
|
—
|
|
|
9,336
|
|
Deferred and other long-term liabilities
|
54
|
|
|
(819
|
)
|
|
(1,542
|
)
|
|
—
|
|
|
(2,307
|
)
|
Intercompany loans
|
6,551
|
|
|
(5,298
|
)
|
|
(1,253
|
)
|
|
—
|
|
|
—
|
|
Net cash (used in) provided by operating activities
|
(27,625
|
)
|
|
27,771
|
|
|
39,176
|
|
|
—
|
|
|
39,322
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(365
|
)
|
|
(2,618
|
)
|
|
(18,722
|
)
|
|
—
|
|
|
(21,705
|
)
|
Intercompany property and equipment transfers, net
|
344
|
|
|
(287
|
)
|
|
(57
|
)
|
|
—
|
|
|
—
|
|
Proceeds from disposals of property and equipment
|
—
|
|
|
19
|
|
|
1,069
|
|
|
—
|
|
|
1,088
|
|
Net cash provided by (used in) investing activities
|
(21
|
)
|
|
(2,886
|
)
|
|
(17,710
|
)
|
|
—
|
|
|
(20,617
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
Net increase in notes payable
|
—
|
|
|
—
|
|
|
7,365
|
|
|
|
|
7,365
|
|
Principal payments on debt
|
(18,066
|
)
|
|
—
|
|
|
(14,989
|
)
|
|
—
|
|
|
(33,055
|
)
|
Payment of deferred financing fees
|
(1,047
|
)
|
|
—
|
|
|
(735
|
)
|
|
—
|
|
|
(1,782
|
)
|
Dividends paid
|
1,657
|
|
|
4,024
|
|
|
(5,681
|
)
|
|
—
|
|
|
—
|
|
Intercompany loans
|
40,025
|
|
|
(29,156
|
)
|
|
(10,869
|
)
|
|
—
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
22,569
|
|
|
(25,132
|
)
|
|
(24,909
|
)
|
|
—
|
|
|
(27,472
|
)
|
Effect of exchange rate changes on cash flows
|
—
|
|
|
3
|
|
|
(25
|
)
|
|
—
|
|
|
(22
|
)
|
Net decrease in cash
|
(5,077
|
)
|
|
(244
|
)
|
|
(3,468
|
)
|
|
—
|
|
|
(8,789
|
)
|
Cash and cash equivalents at beginning of period
|
11,548
|
|
|
280
|
|
|
31,738
|
|
|
—
|
|
|
43,566
|
|
Cash and cash equivalents at end of period
|
$
|
6,471
|
|
|
$
|
36
|
|
|
$
|
28,270
|
|
|
$
|
—
|
|
|
$
|
34,777
|
|
Xerium Technologies, Inc.
Consolidating Statement of Cash Flows
For the year ended
December 31, 2011
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
Operating activities
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
8,190
|
|
|
$
|
37,786
|
|
|
$
|
22,164
|
|
|
$
|
(59,950
|
)
|
|
$
|
8,190
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
1,439
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,439
|
|
Depreciation
|
234
|
|
|
8,040
|
|
|
33,107
|
|
|
—
|
|
|
41,381
|
|
Amortization of other intangibles
|
—
|
|
|
2,212
|
|
|
93
|
|
|
—
|
|
|
2,305
|
|
Deferred financing cost amortization
|
56
|
|
|
204
|
|
|
2,047
|
|
|
—
|
|
|
2,307
|
|
Unrealized foreign exchange loss on revaluation of debt
|
—
|
|
|
—
|
|
|
139
|
|
|
—
|
|
|
139
|
|
Deferred taxes
|
—
|
|
|
—
|
|
|
334
|
|
|
—
|
|
|
334
|
|
Gain on disposition of property and equipment
|
3
|
|
|
(103
|
)
|
|
(464
|
)
|
|
—
|
|
|
(564
|
)
|
Intercompany dividend
|
(1,366
|
)
|
|
—
|
|
|
—
|
|
|
1,366
|
|
|
—
|
|
Curtailment/settlement loss
|
—
|
|
|
—
|
|
|
402
|
|
|
|
|
402
|
|
Loss on extinguishment of debt
|
2,903
|
|
|
6
|
|
|
17
|
|
|
—
|
|
|
2,926
|
|
Provision for doubtful accounts
|
—
|
|
|
658
|
|
|
597
|
|
|
—
|
|
|
1,255
|
|
Undistributed equity in (earnings) loss of subsidiaries
|
(39,640
|
)
|
|
(18,851
|
)
|
|
—
|
|
|
58,491
|
|
|
—
|
|
Change in assets and liabilities which provided (used) cash:
|
|
|
|
|
|
|
|
|
—
|
|
Accounts receivable
|
(9
|
)
|
|
1,230
|
|
|
(2,091
|
)
|
|
—
|
|
|
(870
|
)
|
Inventories
|
—
|
|
|
(1,029
|
)
|
|
(2,477
|
)
|
|
93
|
|
|
(3,413
|
)
|
Prepaid expenses
|
88
|
|
|
(155
|
)
|
|
(238
|
)
|
|
—
|
|
|
(305
|
)
|
Other current assets
|
645
|
|
|
(1,296
|
)
|
|
(521
|
)
|
|
—
|
|
|
(1,172
|
)
|
Accounts payable and accrued expenses
|
2,556
|
|
|
(1,970
|
)
|
|
(4,406
|
)
|
|
—
|
|
|
(3,820
|
)
|
Deferred and other long-term liabilities
|
(211
|
)
|
|
(1,053
|
)
|
|
(4,062
|
)
|
|
—
|
|
|
(5,326
|
)
|
Intercompany loans
|
6,677
|
|
|
5,108
|
|
|
(11,785
|
)
|
|
—
|
|
|
—
|
|
Net cash (used in)provided by operating activities
|
(18,435
|
)
|
|
30,787
|
|
|
32,856
|
|
|
—
|
|
|
45,208
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(452
|
)
|
|
(4,467
|
)
|
|
(25,235
|
)
|
|
—
|
|
|
(30,154
|
)
|
Intercompany property and equipment transfers, net
|
97
|
|
|
(14
|
)
|
|
(83
|
)
|
|
—
|
|
|
—
|
|
Proceeds from disposals of property and equipment
|
—
|
|
|
146
|
|
|
7,618
|
|
|
—
|
|
|
7,764
|
|
Restricted cash
|
13,702
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,702
|
|
Net cash provided by (used in) investing activities
|
13,347
|
|
|
(4,335
|
)
|
|
(17,700
|
)
|
|
—
|
|
|
(8,688
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
Net decrease in borrowings
|
—
|
|
|
—
|
|
|
(181
|
)
|
|
|
|
(181
|
)
|
Proceeds from borrowings
|
365,000
|
|
|
—
|
|
|
124,810
|
|
|
—
|
|
|
489,810
|
|
Principal payments on debt
|
(263,232
|
)
|
|
(51,016
|
)
|
|
(189,542
|
)
|
|
—
|
|
|
(503,790
|
)
|
Payment of deferred financing fees
|
(13,101
|
)
|
|
—
|
|
|
(4,201
|
)
|
|
—
|
|
|
(17,302
|
)
|
Dividends paid
|
1,366
|
|
|
—
|
|
|
(1,366
|
)
|
|
—
|
|
|
—
|
|
Intercompany loans
|
(79,742
|
)
|
|
24,812
|
|
|
54,930
|
|
|
—
|
|
|
—
|
|
Net cash used in financing activities
|
10,291
|
|
|
(26,204
|
)
|
|
(15,550
|
)
|
|
—
|
|
|
(31,463
|
)
|
Effect of exchange rate changes on cash flows
|
—
|
|
|
(1
|
)
|
|
(191
|
)
|
|
—
|
|
|
(192
|
)
|
Net increase in cash
|
5,203
|
|
|
247
|
|
|
(585
|
)
|
|
—
|
|
|
4,865
|
|
Cash and cash equivalents at beginning of period
|
6,345
|
|
|
33
|
|
|
32,323
|
|
|
—
|
|
|
38,701
|
|
Cash and cash equivalents at end of period
|
$
|
11,548
|
|
|
$
|
280
|
|
|
$
|
31,738
|
|
|
$
|
—
|
|
|
$
|
43,566
|
|
Xerium Technologies, Inc.
Consolidating Statement of Cash Flows
For the year ended
December 31, 2010
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
Operating activities
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(73,086
|
)
|
|
$
|
14,142
|
|
|
$
|
(4,735
|
)
|
|
$
|
(9,407
|
)
|
|
$
|
(73,086
|
)
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
7,310
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,310
|
|
Depreciation
|
323
|
|
|
7,821
|
|
|
30,819
|
|
|
—
|
|
|
38,963
|
|
Amortization of other intangibles
|
—
|
|
|
2,212
|
|
|
106
|
|
|
—
|
|
|
2,318
|
|
Deferred financing cost amortization
|
5,019
|
|
|
189
|
|
|
745
|
|
|
—
|
|
|
5,953
|
|
Unrealized foreign exchange loss on revaluation of debt
|
—
|
|
|
—
|
|
|
(1,621
|
)
|
|
—
|
|
|
(1,621
|
)
|
Deferred taxes
|
—
|
|
|
—
|
|
|
8,614
|
|
|
—
|
|
|
8,614
|
|
Asset impairments
|
—
|
|
|
122
|
|
|
2,768
|
|
|
|
|
2,890
|
|
Gain on disposition of property and equipment
|
—
|
|
|
(213
|
)
|
|
(1,892
|
)
|
|
—
|
|
|
(2,105
|
)
|
Intercompany dividend
|
(1,517
|
)
|
|
(8,294
|
)
|
|
—
|
|
|
9,811
|
|
|
—
|
|
Non-cash reorganization items
|
22,947
|
|
|
1,396
|
|
|
4,455
|
|
|
|
|
28,798
|
|
Change in the fair value of interest rate caps
|
4,630
|
|
|
4,097
|
|
|
994
|
|
|
|
|
9,721
|
|
Provision (credit) for doubtful accounts
|
—
|
|
|
(307
|
)
|
|
(873
|
)
|
|
—
|
|
|
(1,180
|
)
|
Undistributed equity in (earnings) loss of subsidiaries
|
(8,177
|
)
|
|
8,685
|
|
|
—
|
|
|
(508
|
)
|
|
—
|
|
Change in assets and liabilities which provided (used) cash:
|
|
|
|
|
|
|
|
|
—
|
|
Accounts receivable
|
10
|
|
|
(6,389
|
)
|
|
(3,269
|
)
|
|
—
|
|
|
(9,648
|
)
|
Inventories
|
—
|
|
|
(1,583
|
)
|
|
(3,332
|
)
|
|
104
|
|
|
(4,811
|
)
|
Prepaid expenses
|
1,020
|
|
|
(600
|
)
|
|
280
|
|
|
—
|
|
|
700
|
|
Other current assets
|
(823
|
)
|
|
(554
|
)
|
|
(697
|
)
|
|
—
|
|
|
(2,074
|
)
|
Accounts payable and accrued expenses
|
(3,745
|
)
|
|
5,447
|
|
|
9,900
|
|
|
—
|
|
|
11,602
|
|
Deferred and other long-term liabilities
|
300
|
|
|
(623
|
)
|
|
(1,287
|
)
|
|
—
|
|
|
(1,610
|
)
|
Intercompany loans
|
(4,042
|
)
|
|
(12,172
|
)
|
|
16,214
|
|
|
—
|
|
|
—
|
|
Net cash (used in) provided by operating activities
|
(49,831
|
)
|
|
13,376
|
|
|
57,189
|
|
|
—
|
|
|
20,734
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(252
|
)
|
|
(3,435
|
)
|
|
(24,241
|
)
|
|
—
|
|
|
(27,928
|
)
|
Intercompany property and equipment transfers, net
|
—
|
|
|
(645
|
)
|
|
645
|
|
|
—
|
|
|
—
|
|
Proceeds from disposals of property and equipment
|
—
|
|
|
296
|
|
|
3,874
|
|
|
—
|
|
|
4,170
|
|
Restricted cash
|
(13,701
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,701
|
)
|
Other
|
—
|
|
|
—
|
|
|
(29
|
)
|
|
|
|
(29
|
)
|
Net cash (used in) provided by investing activities
|
(13,953
|
)
|
|
(3,784
|
)
|
|
(19,751
|
)
|
|
—
|
|
|
(37,488
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
Net decrease in borrowings
|
—
|
|
|
|
|
(1,025
|
)
|
|
|
|
(1,025
|
)
|
Proceeds from borrowings
|
60,000
|
|
|
—
|
|
|
402
|
|
|
—
|
|
|
60,402
|
|
Principal payments on debt
|
(10,098
|
)
|
|
(595
|
)
|
|
(7,886
|
)
|
|
—
|
|
|
(18,579
|
)
|
Payment of deferred financing fees
|
(5,997
|
)
|
|
(456
|
)
|
|
(1,719
|
)
|
|
—
|
|
|
(8,172
|
)
|
Dividends paid
|
1,517
|
|
|
8,294
|
|
|
(9,811
|
)
|
|
—
|
|
|
—
|
|
Intercompany loans
|
17,481
|
|
|
(16,810
|
)
|
|
(671
|
)
|
|
—
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
62,903
|
|
|
(9,567
|
)
|
|
(20,710
|
)
|
|
—
|
|
|
32,626
|
|
Effect of exchange rate changes on cash flows
|
—
|
|
|
(92
|
)
|
|
(118
|
)
|
|
—
|
|
|
(210
|
)
|
Net (decrease) increase in cash
|
(881
|
)
|
|
(67
|
)
|
|
16,610
|
|
|
—
|
|
|
15,662
|
|
Cash and cash equivalents at beginning of period
|
7,226
|
|
|
100
|
|
|
15,713
|
|
|
—
|
|
|
23,039
|
|
Cash and cash equivalents at end of period
|
$
|
6,345
|
|
|
$
|
33
|
|
|
$
|
32,323
|
|
|
$
|
—
|
|
|
$
|
38,701
|
|
14. Quarterly Financial Data
The following table presents our unaudited consolidated statements of operations data for each quarter in the two years ended December 31, 2012. We believe that all necessary adjustments, consisting only of normal recurring adjustments, have been made to present fairly the unaudited quarterly results when read in conjunction with our audited consolidated financial statements and the notes thereto appearing elsewhere in this document. These operating results are not necessarily indicative of the results of operations that may be expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
Dec. 31,
2012
|
|
Sept. 30,
2012
|
|
June 30,
2012
|
|
Mar. 31,
2012
|
|
Dec. 31,
2011
|
|
Sept. 30,
2011
|
|
June 30,
2011
|
|
Mar. 31,
2011
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
Net sales
|
|
$
|
133,767
|
|
|
$
|
134,231
|
|
|
$
|
136,378
|
|
|
$
|
134,364
|
|
|
$
|
145,189
|
|
|
$
|
148,227
|
|
|
$
|
150,378
|
|
|
$
|
143,166
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
86,775
|
|
|
85,079
|
|
|
85,396
|
|
|
87,921
|
|
|
94,986
|
|
|
94,010
|
|
|
92,507
|
|
|
89,251
|
|
Selling
|
|
18,979
|
|
|
18,546
|
|
|
19,070
|
|
|
19,488
|
|
|
19,559
|
|
|
19,817
|
|
|
20,507
|
|
|
19,524
|
|
General and administrative
|
|
16,192
|
|
|
15,650
|
|
|
14,034
|
|
|
17,825
|
|
|
14,452
|
|
|
14,002
|
|
|
16,178
|
|
|
17,380
|
|
Research and development
|
|
3,150
|
|
|
2,700
|
|
|
2,869
|
|
|
2,962
|
|
|
3,177
|
|
|
2,907
|
|
|
2,925
|
|
|
3,088
|
|
Restructuring
|
|
14,765
|
|
|
5,840
|
|
|
1,129
|
|
|
3,974
|
|
|
302
|
|
|
577
|
|
|
542
|
|
|
168
|
|
Total operating costs and expenses
|
|
139,861
|
|
|
127,815
|
|
|
122,498
|
|
|
132,170
|
|
|
132,476
|
|
|
131,313
|
|
|
132,659
|
|
|
129,411
|
|
(Loss) income from operations
|
|
(6,094
|
)
|
|
6,416
|
|
|
13,880
|
|
|
2,194
|
|
|
12,713
|
|
|
16,914
|
|
|
17,719
|
|
|
13,755
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(9,384
|
)
|
|
(9,777
|
)
|
|
(9,120
|
)
|
|
(9,598
|
)
|
|
(9,441
|
)
|
|
(9,873
|
)
|
|
(9,982
|
)
|
|
(9,854
|
)
|
Gain (loss) on extinguishment of debt
|
|
243
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,926
|
)
|
|
—
|
|
Foreign exchange (loss) gain
|
|
(514
|
)
|
|
(202
|
)
|
|
(180
|
)
|
|
539
|
|
|
128
|
|
|
(289
|
)
|
|
(159
|
)
|
|
164
|
|
(Loss) income before benefit (provision) for income taxes
|
|
(15,749
|
)
|
|
(3,563
|
)
|
|
4,580
|
|
|
(6,865
|
)
|
|
3,400
|
|
|
6,752
|
|
|
4,652
|
|
|
4,065
|
|
Benefit (provision) for income taxes
|
|
6,667
|
|
|
(94
|
)
|
|
(2,354
|
)
|
|
(657
|
)
|
|
(967
|
)
|
|
(3,264
|
)
|
|
(3,030
|
)
|
|
(3,418
|
)
|
Net (loss) income
|
|
$
|
(9,082
|
)
|
|
$
|
(3,657
|
)
|
|
$
|
2,226
|
|
|
$
|
(7,522
|
)
|
|
$
|
2,433
|
|
|
$
|
3,488
|
|
|
$
|
1,622
|
|
|
$
|
647
|
|
Comprehensive (loss) income
|
|
$
|
(12,891
|
)
|
|
$
|
(1,781
|
)
|
|
$
|
(10,232
|
)
|
|
$
|
(3,478
|
)
|
|
$
|
(16,525
|
)
|
|
$
|
(18,375
|
)
|
|
$
|
7,529
|
|
|
$
|
6,392
|
|
Net (loss) income per common share—basic
|
|
$
|
(0.59
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.50
|
)
|
|
$
|
0.16
|
|
|
$
|
0.23
|
|
|
$
|
0.11
|
|
|
$
|
0.04
|
|
Net (loss) income per common share—diluted
|
|
$
|
(0.59
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.50
|
)
|
|
$
|
0.16
|
|
|
$
|
0.23
|
|
|
$
|
0.11
|
|
|
$
|
0.04
|
|